Intermediate Microeconomics · free preview
The Lerner Rule and Monopoly Welfare
The markup equation p minus MC over p equals one over the elasticity magnitude prices market power, 0.79 at the worked solution, and the monopoly equilibrium burns the deadweight triangle 484 while transferring 968, the two ledgers policy must weigh.
1. The Lerner equation
The Lerner equation
2. Welfare at the monopoly point
Welfare at the monopoly point
3. Natural monopoly
Natural monopoly
4. Measuring power in practice
Measuring power in practice
5. The Lerner index
What exactly does the Lerner index equate in its famous equation?
6. The worked check
Verify the Lerner index at the monopoly solution, p 56, MC 12, elasticity 1.27.
7. The deadweight triangle
What is the monopoly deadweight loss in the worked market?
8. Natural monopoly pricing
Why does marginal-cost pricing fail for a natural monopoly?
9. The index value
Compute 44 divided by 56, and write the number to two decimals.
10. Competitive surplus
At the competitive P of 12 and Q of 44, compute consumer surplus as half of 88 times 44, and write the number.
11. The two losses side by side
The monopolist earns 968 in profit and society loses 484 in deadweight triangle. What is the relation?
12. The regulated natural monopoly
A natural monopoly with falling average cost is ordered to price at marginal cost, p equals 12. What happens?
13. The competitive benchmark index
What is the Lerner index for a perfectly competitive firm?
14. Reading the index aloud
The worked monopoly's Lerner index is 0.79. What does the number say in words?
15. Surplus at the monopoly point
Compute consumer surplus at the monopoly point as half of 44 times 22, and write the number.
16. The ratio of rectangle to triangle
Compute monopoly profit 968 divided by deadweight loss 484, and write the number.
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