When the value of the Lerner index is zero for a firm:
A)its demand curve is steeply sloped.
B)its demand curve is non-linear.
C)the demand for its product is unit elastic.
D)the demand for its product is perfectly elastic.

Question

Quizplus · Accepted Answer

When the Lerner index is zero, it means that the firm is pricing at its marginal cost, which is a condition for perfect competition. In such a scenario, the demand for its product becomes perfectly elastic, meaning any increase in price would result in a complete loss of market share to competitors.

When the Value of the Lerner Index Is Zero for a Firm