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A firm contains a marginal cost of $20 and charges a price of $40. the Lerner index for this firm exists 0.50.
What is Lerner index?
- In economics, the Lerner index measures a firm's market power. It was formalized in 1934 by Abba P. Lerner, a Russian-British economist.
- The Lerner index is represented by the following formula: Lerner Indicator = P - MC/P where The firm's established price for the good is P, and the firm's marginal cost exists MC.
- The index computes the markup that a company can add to its marginal cost. The index has a value between 0 and 1, with 1 being the highest.
- The greater the value of the Lerner index, the greater the company's ability to The Lerner index was developed in 1934 by Abba Lerner, a British economist of Russian descent, as a way to quantify market power.
A firm contains a marginal cost of $20 and charges a price of $40. the Lerner index for this firm exists 0.50.
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