Lerner Index Calculator
Results are estimates based on the values you enter. Recheck your inputs and assumptions before using the output for decisions.
Calculate the Lerner Index from price and marginal cost to measure pricing power.
Lerner Index Calculator
Free online Lerner Index calculator to measure pricing power from price and marginal cost. This calculator is useful for economics students, analysts, consultants, researchers, and business strategists who want a quick way to estimate how far price sits above marginal cost. The Lerner Index is a classic microeconomics measure of market power because it connects markup with the firm’s ability to price above the cost of producing one more unit.
This page uses two main inputs: price and marginal cost. Price means the selling price charged for one unit, while marginal cost means the cost of producing one additional unit. From those inputs, the calculator shows the Lerner Index, the markup amount, the marginal cost share of price, and the price-to-marginal-cost ratio. Together, these outputs make it easier to understand both the percentage margin and the absolute price-cost gap.
The formula of Lerner Index
Lerner Index = (Price – Marginal cost) / Price
Markup amount = Price – Marginal cost
Marginal cost share of price = Marginal cost / Price
Price to marginal cost ratio = Price / Marginal cost
Here price means the selling price per unit and marginal cost means the additional cost of producing one more unit. A Lerner Index close to 0 suggests weak pricing power, while a higher value suggests stronger ability to price above marginal cost.
Solved Example
Example 1: Find the Lerner Index if price is $25 and marginal cost is $15.
Solve: Markup amount = 25 – 15 = $10
Lerner Index = (25 – 15) / 25 = 10 / 25 = 0.40 = 40%
Marginal cost share of price = 15 / 25 = 0.60 = 60%
Price to marginal cost ratio = 25 / 15 = 1.667
Example 2: Find the result if price is $40 and marginal cost is $28.
Solve: Markup amount = 40 – 28 = $12
Lerner Index = 12 / 40 = 0.30 = 30%
Marginal cost share of price = 28 / 40 = 0.70 = 70%
Price to marginal cost ratio = 40 / 28 = 1.429
Example 3: Find the result if price is $12 and marginal cost is $9.
Solve: Markup amount = 12 – 9 = $3
Lerner Index = 3 / 12 = 0.25 = 25%
Marginal cost share of price = 9 / 12 = 0.75 = 75%
Price to marginal cost ratio = 12 / 9 = 1.333
Table of Lerner Index calculator
| Price | Marginal Cost | Markup | Lerner Index | Price / Cost Ratio |
|---|---|---|---|---|
| $12 | $9 | $3 | 25% | 1.333 |
| $25 | $15 | $10 | 40% | 1.667 |
| $40 | $28 | $12 | 30% | 1.429 |
| $60 | $36 | $24 | 40% | 1.667 |
How to use this Lerner Index calculator
Enter the selling price in the proper input field and then enter the marginal cost for the same product or service. Make sure both values are measured on the same unit basis. Then click the calculate button. The calculator will show the Lerner Index, markup amount, marginal cost share of price, and the price-to-marginal-cost ratio in the result box.
This calculator is useful when comparing products, studying competition, estimating pricing power, and reviewing how much price exceeds marginal cost. A higher Lerner Index usually suggests stronger ability to maintain price above marginal cost, while a lower value suggests tighter competition or weaker markup ability. Looking at the markup amount beside the percentage result also helps connect theory to actual dollars.
When using the result, remember that the Lerner Index is a simplified measure and depends on a reasonable estimate of marginal cost. In real businesses, marginal cost can be difficult to isolate exactly, especially when overhead and capacity effects matter. Even so, the Lerner Index remains a useful teaching and analysis tool. This calculator gives a fast numerical view that supports economic interpretation, pricing review, and classroom or strategy work.