[amp_mcq option1=”Both A and B” option2=”$$\frac{{P – mc}}{P}$$” option3=”$$\frac{1}{E}$$” option4=”None of the above” correct=”option2″]
The correct answer is B. Lerner’s index of monopoly power is $$\frac{{P – mc}}{P}$$.
Lerner’s index of monopoly power is a measure of the market power of a firm. It is calculated as the ratio of the difference between the price of a good and its marginal cost to the price of the good. A higher Lerner index indicates that a firm has more market power.
The Lerner index is a useful tool for analyzing the market power of firms in different industries. It can also be used to predict the effects of government policies on market power.
Option A is incorrect because it is not a measure of market power. Option C is incorrect because it is the elasticity of demand. The elasticity of demand is a measure of how responsive consumers are to changes in price. A higher elasticity of demand indicates that consumers are more sensitive to changes in price, and therefore have more bargaining power.