Question

A firm has a managerial cost of $120 and charges a price of $40. the lerner index for this firm is:_______A. 0.20. B. 0.50. C. 0.33. D. 0.75.

Answer 1

B. 0.50

Step-by-step explanation:

Lerner index = (price - marginal cost) / price

I guess that the question wasn't copied correctly, since it shouldn't say managerial costs, instead it should say marginal costs. And to be honest, marginal costs should either be $10 or $20, not $120 if the sales price is only $40.

Assuming a marginal cost of $20, then the Lerner index = ($40 - $20) / $40 = $20 / $40 = 0.5

The Lerner index measures the markup over marginal costs.