3. What is the Lernerís index of market power? How do we measure it?
4. Perfect competition vs. monopolistic competition:
(a) What is the difference between perfect competition and monopolistic competition?
(b) Suppose the only long-run adjustment is free entry or exit of firms. What is the difference between the short-run
equilibrium conditions faced by a perfectly competitive firm and a monopolistically competitive firm? How about
the long-run equilibrium conditions?
3. Lerner's Index was given by British economist Abraham (Abba) Ptachya Lerner in 1934 to denote the market power of a firm.
Learner's Index is calculated using the following formula:
Learner's Index = (P - MC)/P
In which P is price and MC is the marginal cost of the firm. The value of the Lerner's Index ranges from 0 to 1. The higher the value of the index, the higher is the market power of the firm. A pure monopoly has absolute market power and its Learner's Index is 1. On the other hand, a perfectly competitive firm has no market power and its Learner's Index is 0.
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