Answer: See explanation
Explanation:
A. What price does this firm charge its customers?
This will be calculated by using the formula:
P = (1 / (1 - L))MC
where,
L = Lerner index = 0.45
MC = Marginal cost = $45
P = [(1 / (1 - 0.6)] × 45
P = (1/0.4) × 45
P = 2.5 × 45
P = 112.5
B. By what factor does this firm mark up its price over marginal cost?
Mark up factor = 1 / (1 - L)
= 1 / (1 - 0.6)
= 1/0.4
= 2.5
Therefore, the charged price will be 2.5 times the marginal cost.
