Homework Help
Homework Help
View Details
Assignment Help
Assignment Help
View Details
Online Tutoring
Online Tutoring
View Details
Home » Economics Homework Help » Microeconomics Help » Monopoly Measurement
Monopoly Measurement
Professor A.P. Lerner has put forwards a measure of monopoly power which has gained greets popularity and is most widely cited. Liner takes perfect competition as the basis of departure of measuring monopoly power. He regards pure or perfect competition as the state of social optimum or maximum welfare and any departure from it would indicate the presence fulsome monopoly power leading to misallocation of resources or state of less than social optimum. As we know in perfect competition price is equal to marginal cost of the product in the equilibrium position and it is this equality of price with marginal cost under perfect competition that ensures maximum social welfare or optimum allocation of resources.

Now when competition is less than pure or perfect the demand curve facing a firm will be sloping downward and marginal revenues curve will lay below It. Consequently when competition is less than pure (perfect) that is when it is imperfect in a seller equilibrium position marginal cost will be equal to marginal revenue but price will stand higher than marginal cost or marginal revenue. This divergence between price and marginal cost, according to Professor Lerner is the indicator of the existence of monopoly power. The greater this divergence between price and marginal cost the greater the degree of monopoly power possessed by the seller. Based on this Lerner has given the following precise index of the degree of monopoly power.

Degree of monopoly power = P – MC/P

Where P denoted price and MC denoted marginal cost at the equilibrium level of output.

When competition is pure or perfect price (p) is equal to marginal cost and therefore learners index of monopoly power is equal to zero indicating no monopoly power at all for when price is equal to marginal cost P – MC will be equal to zero and the above formula will yield the value fo index as zero.

Thus under perfect completion Lerner index of monopoly power (P – MC / P) = 0 / P = 0. On the other hand, when the monopolized product entails no cost of production that is when the product is free goods whose supply is controlled by one person the marginal cost will be equal to zero and Lerner index of monopoly power (P- MC / P ) would be equal to one or unity. Thus when MC is equal to zero P – MC / P = P – O / P = P / P = 1.

It is thus clear that Lerner index of monopoly power can vary from zero to unity. Within this range the greater the value of the index (P – MC/ P) the greater the degree of monopoly power possessed by the seller for instance if the price of a product is equal to $ 15 per unit and its marginal cost is$ 10 then the value of index of monopoly power will be 15 – 10 / 15 = 5 /15 = 1/3 and when the price is equal to $ 20 and marginal cost is equal to 10, the index of monopoly power will  be equal to 20 – 10 / 20 = 10 / 20 = ½.

Services:- Monopoly Measurement Homework | Monopoly Measurement Homework Help | Monopoly Measurement Homework Help Services | Live Monopoly Measurement Homework Help | Monopoly Measurement Homework Tutors | Online Monopoly Measurement Homework Help | Monopoly Measurement Tutors | Online Monopoly Measurement Tutors | Monopoly Measurement Homework Services | Monopoly Measurement


Submit Your Query ???
Topics
Economies In Consumption Economies In Production Welfare Economics Theorem Market Failure Pareto Criterion Welfare Economics Value Welfare Economics Asymmetric Information Present Values Insurance Market Intertemporal Choice Intertemporal Analysis Market Signalling Perpetuity Stocks Versus Flows Lemons Market Principal Agent Problem Moral Hazard Oligopoly Characteristics Oligopoly Price Determination Firms Interdependence Price Discrimination Oligopoly Oligopoly Price Output Price Discrimination Degrees Price Discrimination Conditions Price Discrimination Possibility Price Discrimination Timing Profit Maximization Price Theory Profit Assumption Profits Theory Economic Rent Rise Selling Costs Effects Selling Costs Role Economic Systems Capital Formation Comparative Statics Competitive Markets Economic Dynamics Economic Statics Economic Growth Microeconomics Importance Inductive Method Production Inefficiency Micro-Macro Interdependence Microeconomics Scope Scientific Theory Economic Laws Nature Production Possibility Curve Economic Hypothesis Economics Scarcity Inductive Methods Steps Consumer Surplus Applications Cardinal Utility Demand Changes Complements And Substitutes Consumer Surplus Concept Consumers Equilibrium Consumer Surplus Demand Determinants Demand Curve Demand Schedule Elasticity Tax Demand Extension Income Elasticity Indifference Curve Indifference Curve Approach Indifference Curves Demand Theory Substitution Marginal Rate Marginal Utility Rate Market Demand Curve Market Demand Function Marshalls Consumer Surplus Consumer Surplus Measurement Price Elasticity Measurement Preference Hypothesis Price Consumption Curve Price Elasticity Importance Price Elasticity Determinants Demand Price Elasticity Revealed Preference Theory Substitution Elasticity Demand Law Interest Classical Theory Productivity Concepts Rent Concepts Demand Factor Determinants Fishers Interest Theory Functional-Personal Distribution Interest Keynes Interest Theory Land, Rent, Cost Distribution Theory Loanable Funds Marginal Distribution Profits Dynamic Theory Quasi Rent Rent Concepts Rent Ricardian Theory Risk And Uncertainty Factors Supply Wage Determination Average Fixed Cost Average Total Cost Capital Douglas Production Function Compensation Principle Marginal Returns Capital Growth Scale Economies Technical Substitution Entrepreneur External Economies Supply Factors Production Factors Isoquants Properties Human Capital Profit Innovation Theory Interest Theories Isoquants Labour Land Production And Cost Linear Production Function Long Run Equilibrium Marginal Cost Marginal Substitution Monopoly Characteristics Monopoly Price Monopoly Capacity Monopsonistic Discrimination Opportunity Cost Production Function Returns To Scale Capital Role Supply Rent Concepts Fixed Variable Costs External Economies Types Advertising Effects Average Revenue Collusive Oligopoly Competitive Strategy Contestable Markets Dominant Strategy General Equilibrium Monopolistic Equilibrium Monopoly Features Industry Equilibrium Firm And Pricing Supply Curve Marginal Revenue Market Market Forms Market Cartels Monopoly Measurement Monopolistic Competition Monopoly Monopoly Sources Newmann Game Theory Partial Equilibrium Price Determination Price Leadership Thumbs Price Rule Product Differentiation Rent Control Sales Maximization Selling Costs Static Dynamic Stability Time Element Price