Questions
ECON_104B_001_25S Chapter 11 Practice Problems -- Multiple-Choice
Single choice
Suppose a monopolist has a marginal cost of $25 and charges a price of $40. The monopolist's Lerner Index is
Options
A.0.60
B.0.625
C.0.375
D.1.60
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Step-by-Step Analysis
To evaluate the Lerner Index, recall the formula L = (P − MC) / P, where P is price and MC is marginal cost.
First, compute the numerator: P − MC = 40 − 25 = 15.
Next, divide by the price: 15 / 40 = 0.375. This gives the Lerner Index as a decimal.
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