If a monopoly's Lerner Index exceeds 1,then
A) it is earning maximum profit.
B) it has ultimate market power.
C) it must be pricing below marginal cost.
D) marginal revenue is negative.

Question

Quizplus · Accepted Answer

The Lerner Index is calculated as (P - MC) / P, where P is price and MC is marginal cost. If the index exceeds 1, it implies P < 0, which is not possible, indicating a calculation error or that marginal revenue is negative.

If a Monopoly's Lerner Index Exceeds 1,then