Calculate the Lerner Index from price and marginal cost, then review markup per unit, cost share of price, and the implied elasticity benchmark. Use it to test different inputs quickly, compare outcomes, and understand the main factors behind the result before moving on to related tools or deeper guidance.
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Screen pricing power from price and marginal cost Enter selling price and marginal cost to calculate the Lerner Index, then review markup per unit, the cost share
inside price, markup on marginal cost, and the implied elasticity benchmark under the standard monopoly rule.
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Enter price and marginal cost Add a unit price and the marginal cost of producing one more unit to calculate the Lerner Index and its pricing-power context.
Lerner Index calculator guide: pricing power, markup, and the price-cost margin
A Lerner Index calculator turns selling price and marginal cost into a compact measure of pricing power. This page shows the index in both decimal and percentage form, then adds the business context that usually matters more in practice: markup per unit, marginal-cost share of price, markup on marginal cost, and the implied elasticity benchmark under the standard monopoly rule.
What the Lerner Index is measuring
The Lerner Index measures how far price sits above marginal cost as a share of price. If price equals marginal cost, the index is zero. As the gap between price and marginal cost grows relative to the selling price, the index rises toward one.
That is why the index is often described as a pricing-power or market-power screen rather than just a margin metric. It is trying to capture how much room a firm has to price above the incremental cost of one more unit, not simply whether the firm earns accounting profit overall.
This distinction matters because the index depends on marginal cost, not average cost. A business can show a high average-cost burden and still have a low Lerner Index if price sits close to marginal cost. The reverse can also happen in industries with large fixed costs, where the price-cost margin must be interpreted carefully rather than mechanically.
How the Lerner Index is calculated
The formula subtracts marginal cost from price and then divides the difference by price. That produces a dimensionless number between zero and one as long as marginal cost is non-negative and does not exceed price. In percentage form, the same result simply multiplies the decimal by 100.
This worksheet also expands the result into a more practical pricing sheet. It reports the markup per unit in currency terms, the share of price represented by marginal cost, and the markup as a percentage of marginal cost. Those supporting figures help you see the same relationship from multiple angles instead of relying on a single index value alone.
Under the standard monopoly first-order condition, the Lerner Index also links to the absolute value of demand elasticity. In that narrow textbook setting, the index equals the inverse of the elasticity magnitude. That benchmark can be useful for intuition, but it should not be treated as a general real-world demand estimate unless the model assumptions actually fit the market.
L = (P - MC) / P
The Lerner Index equals the unit price-cost margin divided by price.
markup per unit = P - MC
This expresses the same price-cost gap in currency terms instead of index form.
|e| ≈ 1 / L
This implied elasticity benchmark only applies under the simplified monopoly pricing condition used in microeconomics texts.
Suppose a firm sells one unit for 100 while marginal cost is 60. The markup per unit is therefore 40, and the Lerner Index is 40 divided by 100, which equals 0.40 or 40%. That means 60% of price reflects marginal cost and 40% reflects the price-cost margin.
The same example also produces a markup on marginal cost of about 66.67% because the 40-unit markup is two-thirds of the 60-unit marginal cost base. Under the textbook monopoly rule, the implied absolute elasticity benchmark would be 1 divided by 0.40, or 2.5.
Those extra views matter because two businesses can have the same absolute markup in currency terms but different Lerner Index values if they sell at different prices. The worksheet keeps all of those angles together so you can interpret the same pricing relationship more carefully.
What this calculator does not answer on its own
The hardest practical input is usually marginal cost. Many internal models use average variable cost, unit cost, or blended operating cost as a rough proxy, but those are not the same as true marginal cost. If the cost input is only an approximation, the Lerner Index should be treated as an approximation too.
The index also does not prove monopoly or anticompetitive behavior by itself. Pricing above marginal cost can arise for many reasons, including differentiation, fixed-cost recovery, capacity constraints, or regulation. Use this worksheet as a market-power and pricing screen, not as a stand-alone legal or economic conclusion.
It means price equals marginal cost in the entered scenario. In textbook terms, that is the benchmark associated with perfectly competitive pricing, where there is no price-cost margin above marginal cost.
Can the Lerner Index be negative?
Not in this worksheet. A negative value would mean marginal cost exceeds price, which would not fit the standard interpretation the calculator is designed to explain, so the page treats that input combination as invalid.
Why does the calculator ask for marginal cost instead of average cost?
Because the Lerner Index is defined using marginal cost, which is the cost of producing one more unit. Average cost can be very different, especially in businesses with high fixed costs or economies of scale.
Does a high Lerner Index prove monopoly power?
No. It is a useful pricing-power screen, but real market-power analysis also depends on demand conditions, entry barriers, product differentiation, regulation, and how reliable the marginal-cost estimate is.
