A firm's Lerner Index:

Question

Quizplus · Accepted Answer

The Lerner Index measures market power by calculating the difference between a firm's price and its marginal cost as a percentage of its price. A higher value of the Lerner Index implies greater market power, while a value of zero implies perfect competition. Therefore, option A is the correct answer. Option B is incorrect because it refers to the difference between marginal cost and average cost, which is not measured by the Lerner Index. Option C is also incorrect because it refers to the difference between average cost and marginal cost, which is not relevant to the calculation of the Lerner Index. Option D is incorrect because the Lerner Index is not a value of profit, but rather a measure of market power.

A Firm's Lerner Index