Abba Ptatchya Lerner's Index

Economics Economics Questions
1

According to Lerner’s equations, we see that monopoly power of a firm on a scale of 0 to infinity can be calculated as:

L = (P-MC)/MC = 1/Ed

Strange.

Ed of wheat is 0.04 as per USDA’s statistics.

So a poor wheat farmer in Central Asia has a super-monopoly power of 25 and can charge prices 2500% higher than marginal cost? And is thus highly monopolistic?

On the other hand, Ed of any compact automobile is roughly 2.8.

So a giant automobile company like Toyota has a negligible monopoly power of 0.36 and can at most charge prices 36% above marginal cost? And is thus no better than a commodity producer?

A poor Khazak farmer is a bigger monopoly than Toyota? Quite innocently, I posed this question to my economics professor and he was also puzzled as to whether Lerner’s index really indicates anything at all.

2

For the Lerner Index you can not use the market demand curve (dumb limitation makes this index useless) you can only use the demand curve the firm faces.