Share
Explore BrainMass

The Lerner Index

A firm has $1 Million in Sales, a Lerner Index of 0.65 and a marginal cost of $35 and competes against 1,000 other firms in its relevant market.

a. What price does the firm charge it customers? Show formula to explain how do this.
b. By what factor does this firm mark up its price over marginal cost?
c. Do you thinkthis firm enjoys much market power? Explain your findings.

Show how the Lerner Index is important in this problem?

Solution Preview

The Lerner Index: The Lerner Index is a measure of the profitability of a firm that sells a good: (price - marginal cost) / price.

a)What price does the firm charge it customers? Show formula to explain how do this.
Lerner Index=.65= (Price ...

Solution Summary

This explains the concept of the Lerner Index

$2.19