Asked by Jasmine Sarmientos on Jun 09, 2024
Verified
DVDs can be produced at a constant marginal cost of $10 per disk, and Roaring Lion Studios is releasing the DVDs for its last two major films. The DVD for Rambeau 17 is priced at $20 per disk, and the DVD for Schreck 10 is priced at $30 per disk. What are the Lerner indices for these two movies?
A) Both equal one.
B) 2 and 3, respectively
C) 0.5 and 0.67, respectively
D) 1 and 2, respectively
Lerner Indices
A measure of a firm's market power calculated by the difference between price and marginal cost relative to the price.
Marginal Cost
The additional cost incurred by producing one more unit of a product, reflecting the cost of the resources used in the production of that extra unit.
- Analyze the implications of elasticity in demand on the choice of pricing methods to ensure maximal profits.
- Understand the role of patents in establishing and maintaining monopoly power.
Verified Answer
TB
Taylor BarnettJun 10, 2024
Final Answer :
C
Explanation :
The Lerner index is calculated as (Price - Marginal Cost) / Price. For Rambeau 17, it's (20 - 10) / 20 = 0.5. For Schreck 10, it's (30 - 10) / 30 = 0.67.
Learning Objectives
- Analyze the implications of elasticity in demand on the choice of pricing methods to ensure maximal profits.
- Understand the role of patents in establishing and maintaining monopoly power.