Question

    A Lerner Index of 0 indicates which of the following market conditions?

    A Perfect competition Correct Answer Incorrect Answer
    B Monopoly Correct Answer Incorrect Answer
    C Monopolistic competition Correct Answer Incorrect Answer
    D Oligopoly Correct Answer Incorrect Answer

    Solution

    A Lerner Index of 0 indicates perfect competition, where the price equals marginal cost, and firms have no market power to mark up prices above its cost. Formula of Learner index is à L= ((P-MC)/P) = 1/e, where e is the price elasticity of demand.

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