Lerner in 1934, the Lerner index is expressed in the following formula: Lerner index = ^P-MC/_P where P represents the price of the good set by the firm and MC represents the firm's marginal cost. Essentially, the index measures the percentage markup that a firm is able to charge over its marginal cost.

How do you calculate Lerner index with example?

The Lerner index is calculated as (P - MC) / P. It is 1/2 in this example. ; marginal revenue is MR = 30 – 1.5Q; and marginal cost is MC = 9 + 0.6Q.

What is the Lerner index for the monopolist?

Economists use the Lerner Index to measure monopoly power, also called market power. The index is the percent markup of price over marginal cost. The Lerner Index is a positive number (L >= 0), increasing in the amount of market power.