How is an oligopoly market structure different from the othe

How is an oligopoly market structure different from the other three market structures studied in Chs. 8-9?

What’s the relationship between MR and P for a firm with market power? Why?

What is a firm’s mark-up?

What does the Lerner Index measure and how is it calculated?

Solution

1. Oligopoly

Perfect competition is a market structure

Monopolistic competition refers to a market structure, where

Monopoly

3. Mark up is the price which a firm adds to the cost price of a product. The value so added to the cost price of a product is called the mark-up and generally equals retail price.

4. The Lerner index defines a market power of a firm. It value ranges from 1(high) to 0 (low). The higher Lerner index denotes greater market power. The Lerner index is calculated as (P - MC) / P, where P = market price set by the firm and MC = firm\'s marginal cost.