Markup is the difference between the selling price of a good or service and cost. It is often expressed as a percentage over the cost. A markup is added into the total cost incurred by the producer of a good or service in order to cover the costs of doing business and create a profit. The total cost reflects the total amount of both fixed and variable expenses to produce and distribute a product. Markup can be expressed as a fixed amount or as a percentage of the total cost or selling price. Retail markup is commonly calculated as the difference between wholesale price and retail price, as a percentage of wholesale. Other methods are also used.

## Price determination

### Profit

• Assume: Sale price is 2500, Product cost is 1800

### Markup

Below shows markup as a percentage of the cost added to the cost to create a new total.
• Cost × = Sale price
• Assume the sale price is \$1.99 and the cost is \$1.40
• To convert from markup to profit margin:
Another method of calculating markup is based on percentage of cost. This method eliminates the two-step process above and incorporates the ability of discount pricing.
• For instance cost of an item is 75.00 with 25% markup discount.
Comparing the two methods for discounting:
• 75.00 × = 93.75 sale price with a 25% discount
• 75.00 / = 100.00 sale price with a 25% discount
These examples show the difference between adding a percentage of a number to a number and asking of what number is this number X% of. If the markup has to include more than just profit, such as overhead, it can be included as such:
• cost × 1.25 = sale price
or
• cost /.75 = sale price

### Aggregate supplyframework

P = W. Where μ is the markup over costs. This is the pricing equation.
W = F Pe. This is the wage setting relation. u is unemployment which negatively affects wages and z the catch all variable positively affects wages.
P = Pe F. This is the aggregate supply curve. Where the price is determined by expected price, unemployment and z the catch all variable.