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Economics
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19 Aug 2019

Under the Lerner Index of market power definition, an existing perfectly competitive firm

has zero market power because its marginal cost equal the market price.

has a positive market power because it makes a positive profit.

has the same market power as a monopoly.

is not qualified to apply the Lerner index.

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Related questions

A firm (that produces a single type of product) has a long run Lerner index of 0.50 and marginal cost of $100.

Calculate the price charged by the firm for its product (The firm charges the same price per unit of its product to all customers at all times)

Which industry is the firm more likely in: Monopoly, or Monopolistic competition? Carefully explain your answer. Your answer must clearly indicate that you understand the concepts: Lerner Index, Monopoly, and Monopolistic Competition

Suppose a firm with market power faces the following inverse demand P=4-(Q/20) The firm has the cost function C= 100 +8.4Q-(5/4)Q^2+(1/30)Q^3.Ā 

a.Calculate the firm's market power as measured by the Lerner Index.

b. Suppose the firm is contemplating investing $5 in R&D that, if successful, would change the demand to P=6-(Q/20) and the cost function to C=50+8.5Q-(7/10)Q^2+(1/60)Q^3. Find the minimum probability of success needed to convince the firm to invest in innovation.Ā 

1. Which of the following is a difference between a perfectly competitive market and a monopoly?

A. There are huge barriers to entry in a perfectly competitive market, while there are no barriers to entry in a monopoly.

B. The market demand curve faced by a perfectly competitive firm is horizontal, while the market demand curve in a monopoly is downward-sloping.

C. The sellers in a perfectly competitive market are price-makers, while a seller in a monopoly market is a price-taker.

D. The equilibrium price in a perfectly competitive market exceeds marginal revenue, while the equilibrium price in a monopoly equals marginal revenue.

Ā 

2. Which of the following firms is likely to have the highest market power?

A. An oligopoly with homogeneous products

B. A monopoly

C. A monopolistic competitor

D. A perfectly competitive firm

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