Question

What is the lerner index of a firm that has an average

variable cost of $10, and that charges a price of $25.
A. 0.10
B. 0.25
C. 0.4
D. 0.6
E. Indeterminable

Answer 1

The Lerner Index for a firm with an average variable cost of $10 and a price of $25 is calculated as (25 - 10) / 25, which equals 0.6. The correct answer to the question is D. 0.6.

Step-by-step explanation:

The Lerner Index is a measure of a firm's market power based on the difference between the price it charges (P) and its average variable cost (AVC). It's expressed as (P - AVC) / P. In this case, with an average variable cost of $10 and a price of $25, we calculate the Lerner Index as follows:

Lerner Index = (P - AVC) / P = (25 - 10) / 25 = 15 / 25 = 0.6

The correct answer to the student's question is D. 0.6.