# Lerner Index Calculator

URL: https://speedycalculator.com/calculators/finance/lerner-index/
Last updated: 2026-10-25

> The Lerner index calculator measures a firm's market power – how far its price is above marginal cost – and the price elasticity of demand that the markup implies for a profit-maximising firm.

## Inputs

- Price
- Marginal cost

## Results

- Lerner index
- Markup over marginal cost
- Implied price elasticity of demand
- Market power

## Formula

```
Lerner index L = (P − MC) ÷ P
For a profit maximiser: L = −1 ÷ elasticity of demand
```

## Explanation

The Lerner index runs from 0 (perfect competition, price equals marginal cost) towards 1 (strong monopoly power). It is used by economists and competition authorities to gauge how much pricing power a firm has.

### How to use the Lerner Index Calculator

- **Price**
- **Marginal cost**

Results update as you type, and every field accepts the units shown in its menu.

### How it works

Enter the price and the marginal cost.

### Tips

- Use figures for the same period (a month, a quarter or a year) for every input so ratios compare like with like.
- Track the metric over time – the trend usually tells you more than a single value.
- Compare your result with industry benchmarks, which vary a lot between sectors.
- Treat the result as a starting point for a decision, then check the assumptions behind each input.

### Common mistakes to avoid

- Mixing monthly and yearly numbers in the same calculation.
- Using revenue where the formula needs profit (or the other way round).
- Forgetting hidden costs such as taxes, fees, overheads or your own time.

### Inputs explained

FieldWhat to enterPriceAmount in your currencyMarginal costAmount in your currency

### What each result means

- **Lerner index** = ([Price] - [Marginal cost])÷[Price]
- **Markup over marginal cost** = ([Price]÷[Marginal cost] - 1)×100
- **Implied price elasticity of demand** = -1÷[Lerner index]

### Example values

How the main result changes when **Price** changes and everything else stays at the example values above:

PriceLerner index60-0.333900.1111200.3331500.4671800.5562400.667

## Worked example

Inputs — Price: $120; Marginal cost: $80.

Results — **Lerner index = 0.333**; Markup over marginal cost = 50 %; Implied price elasticity of demand = -3; Market power = Significant market power.

## FAQ

**What does a Lerner index of 0 mean?**
Price equals marginal cost – no market power.

**Can the Lerner index be negative?**
Only if a firm prices below marginal cost, which is not sustainable.

**How is it related to elasticity?**
For a profit-maximising firm, L = 1 ÷ |elasticity|.

**What formula does the Lerner Index Calculator use?**
Lerner index L = (P − MC) ÷ P.