
Price and Output Determination Under Monopoly 73
monopoly power is ratio of P − MC to P, where P is equilibrium price. us, the degree of monopoly
power (M
p
) may be measured as
M
P
p
=
− MC
where P = price, MC = marginal cost.
Since for a prot maximizing rm, MR = MC, Lerner’s measure of monopoly power may also be
expressed as,
M
P
p
=
− MR
Since P/(P − MR) = e (elasticity), (P − MR)/P = 1 /e. It means that M
p
′ equals the reciprocal of elasticity.
us, Lerner’s measure of monopoly power may also be expressed as M
p
= 1/e. It may thus be inferred
that lower the elasticity, the greater the degree of monopoly, and vice versa. According to Lerner’s