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Economic Definition of price-cost margin. Defined.

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Term price-cost margin Definition: The difference between price (p) and marginal cost (mc) as a fraction of price, that is [p-mc]/p. The price-cost margin is usually taken as an indicator of market power because the larger the margin, the larger the difference between price and marginal cost, that is, the larger the distance between the price and the competitive price. The price-cost margin depends on the elasticity of demand. The price-cost margin is also called the Lerner index of market power.


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