How Useful Is the Lerner Index as a Measure of Monopoly

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The Answer is The Lerner index is given by L = (P - MC)/P. For a profit-maximizing monopolist, the Lerner index is equal to the inverse of the industry's price elasticity of demand. It is a useful measure of the degree to which monopoly raises price above marginal cost. However, it does not take into account the monopolist's volume of production, and so does not measure the actual magnitude of monopoly profits.

How Useful Is the Lerner Index as a Measure of Monopoly

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How Useful Is the Lerner Index as a Measure of Monopoly

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