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a firm's average cost is $20, and it charges a price of $20. the lerner index for this firm is multiple choice 0.20. 0.50. 0.33. indeterminable.

Sagot :

The Lerner index for this firm is indeterminable

What is Lerner index?

Lerner index is the formula created by economist Abba P. Lerner to measure of market power of a firm. The formula of Lerner index is

Lerner index = [tex]\frac{P-MC}{P}[/tex]

P = good price set by the firm

MC = marginal cost of the firm

The average cost is not a marginal cost because the average cost calculates the costs incurred for each product produced, while the marginal cost is the change in costs incurred for each change in the product produced.

The marginal cost can equal to average cost only if the the average cost reach their lowest point. Apart from that, marginal cost and average cost will not be the same.

Thus, the Lerner index for this firm is indeterminable

Learn more about Lerner index here:

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