Assume that for a particular firm's output price = $80,marginal cost = $30,average total cost = $25.Based on this information,the firm's Lerner Index is equal to:
A)0.313.
B)0.375.
C)0.6.
D)0.625.

Question

Quizplus · Accepted Answer

The Lerner Index (LI) is a measure of market power that shows the percentage markup of price over marginal cost. It is computed as follows:

LI = (P - MC) / P

where P is the output price and MC is the marginal cost.

In this case, we have:

P = $80
MC = $30

Therefore, LI = (80 - 30) / 80 = 0.625

This means that the firm has a markup of 62.5% over its marginal cost, indicating a relatively high degree of market power.

Assume That for a Particular Firm's Output Price = $80,marginal