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Questions › IIT JAM › IIT JAM 2025 › Q56
2 marksMicroeconomics › Monopoly and price discrimination › Lerner index and monopoly powerHardabout 3 min

IIT JAM 2025 Question 56: Monopoly and price discrimination

Lerner Index (L)(L)(L), a measure of market power, is defined as P−MCP\dfrac{P-MC}{P}PP−MC​, where PPP and MCMCMC are, respectively, price and marginal cost of a firm. If a profit maximising firm faces the demand curve P2Q=7P^2Q=7P2Q=7, the value of LLL is ________ (rounded off to one decimal place).

Answer and worked solution

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Plain-text version

Lerner Index (L), a measure of market power, is defined as (P-MC)/P, where P and MC are, respectively, price and marginal cost of a firm. If a profit maximising firm faces the demand curve P²Q=7, the value of L is (*rounded off to one decimal place*).

Also written as: Lerner Index (L), a measure of market power, is defined as (P-MC)/P, where P and MC are, respectively, price and marginal cost of a firm. If a profit maximising firm faces the demand curve P^2Q=7, the value of L is (*rounded off to one decimal place*).

Monopoly and price discrimination has come up 128 times in 7 exams since 2004.

What this question tests

This question is on Lerner index and monopoly power, part of Monopoly and price discrimination in Microeconomics.

The mark-up of price over marginal cost and its link to the elasticity of demand.

TestStop has 12 past-paper questions on this subtopic; the nearest in year are below.

  • IIT JAM 2022 · Q40A monopolist faces demand Q = P^e, where e is the price elasticity of demand (e < -1), and Marginal Cost =…
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