Question

3) The Lerner index measures: A) a firm's potential monopoly power. B) the amount of monopoly power a firm chooses to exercises when maximizing profits. C) a firm's potential profitability. D) an industry's potential market power.

Answer 1

Lerner Index is used to measure the industry's potential market power

It is measured by (Price- Marginal cost)/ Output Price. It means that it measures the profit margin over the output price i.e the power of the industry to generate profits. Higher the lerner index means the profit margin is high and there may be a monopoly and lower the lerner index means the market is moving towards perfectly competitive.

Hence option d is correct