Suppose a Monopolist Has a Marginal Cost of $25 and Charges

question 65

Multiple Choice

Suppose a monopolist has a marginal cost of $25 and charges a price of $40. The monopolist's Lerner Index is:

• A)0.60
• B)0.625
• C)0.375
• D)1.60

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Definitions:

Returns to Scale

The change in output resulting from a proportional change in all inputs, where increases can be constant, increasing, or decreasing.

Long-Run Average Cost

The average cost per unit of output where all inputs, including capital, are variable in the long term.

Marginal Cost

The costs entailed in generating an extra unit of a product or service.

Economies of Scale

The reduction in per-unit production costs resulting from an increase in the scale of production.