The Lerner Index, which measures a monopolist’s pricing power, is defined as:
L = (P - MC) / P = 1 / |Ed|
Where:
For a monopolist to maximize profit, the absolute value of demand elasticity must be greater than one (|Ed| > 1), ensuring P > MC and a positive Lerner Index.
Row | Statistical Model | Elasticity |
1 | \(y_t=β_1+β_2\frac{1}{x_t}\epsilon_t\) | \(-\frac{β_2}{x^2_t}\) |
2 | \(y_t=β_1-β_2\text{ln}(x_t)+\epsilon_t\) | \(-\frac{β_2}{x^2_t}\) |
3 | ln(yt) = β1 + β2 ln(xt) + εt | β2 |
4 | ln(yt) = β1 + β2xt + εt | β2xt |
5 | ln(yt) = β1 + β2 ln(xt) + εt | β2 exp(xt) |
6 | ln(yt) = β1 + β2xt + εt | \(β_2\frac{1}{\text{exp}(x_t)}\) |
The sum of the payoffs to the players in the Nash equilibrium of the following simultaneous game is ............
Player Y | ||
---|---|---|
C | NC | |
Player X | X: 50, Y: 50 | X: 40, Y: 30 |
X: 30, Y: 40 | X: 20, Y: 20 |