A firm has a marginal cost of $20 and charges a price of $40. the lerner index for this firm is 0.50.
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What is Lerner index?</h3>
Lerner index, in economics is a measure of the market power of a firm. Formalized by the Russian-British economist Abba P. Lerner in 1934.
The Lerner index is expressed in the following formula:
Lerner index = P - MC/P
where P represents the price of the good set by the firm and MC represents the firm's marginal cost.
The index measures the percentage markup that a firm is able to charge over its marginal cost.
The index ranges from a low value of 0 to a high of 1.
The higher the value of the Lerner index, the more the firm is able to charge over its marginal cost, hence the greater its monopoly power.
To learn more about Lerner Index, refer
brainly.com/question/19091231
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