Lerner index

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A measure of monopoly power. The Lerner index is defined by L = (pc)/p, where p is price of the firm's output and c is the marginal cost of production. If the firm operates in a competitive market then p = c and L = 0. Conversely, if the firm is a monopolist then L = 1/|ε| where |ε| is the absolute value of the elasticity of demand. See also Herfindahl index; N-firm concentration ratio.

Subjects: Economics.

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