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3. What is the Lernerís index of market power? How do we measure it?

3. What is the Lernerís index of market power? How do we measure it?

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In simple words, the Lerner Index is an index which is used to measure the market power of firms by relating price to the marginal cost of the firm. The index was given by Abba Lerner in 1934. The Lerner Index is calculated using the following formula:

Learner Index (L) = (Price - Marginal Cost)/Price

The value of the Lerner Index varied from '0' to '1'. The higher the learner index, the higher market power the firm has. Therefore, the Lerner Index for a perfectly competitive firm is '0' and the same for a perfect monopoly is '1'.

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