Question

Consider the market for oranges. Suppose the market price is $4 per pound and the marginal cost of producing a pound of oranges is

$3. The Lerner index is:

Answer 1

In this case, the Lerner index is 0.25.

Step-by-step explanation:

The Lerner index measures the market power or pricing ability of a firm in a market.

It is calculated as the difference between the market price and the marginal cost of production, divided by the market price. In this case, the market price is $4 per pound and the marginal cost is $3 per pound.

So the Lerner index can be calculated as:

Lerner index = (Market price - Marginal cost) / Market price

= ($4 - $3) / $4

= 1/4

= 0.25

Therefore, the Lerner index in this case is 0.25.