A firm has a marginal cost of $20 and charges a price of $40. The Lerner index for this firm is:. A. 0.20. B. 0.50. C. 0.33. D. 0.75.

The correct answer is:

0.50 (B)

Explanation:

The Lerner index is used by monopolists to measure market/monopolist power, and it is defined as the percent markup of price over marginal cost.

It is given by the formula:

Note: in a perfectly competitive market, L = 0, which makes Price = Marginal cost in the equation above. But in a competitive market, it is always the case that L ≥ 0

stye

Explanation:

a stye is a named collection of formats you apply to text in a word processing document.