Markup is the difference between the cost

Cost

In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is counted as cost. In this...

 of a good or service and its selling price. A markup is added on to the total cost incurred by the producer of a good or service in order to create a profit

Profit (accounting)

In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...

. The total cost reflects the total amount of both fixed and variable expenses to produce and distribute a product

Product (business)

In general, the product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce ' lead or bring forth'. Since 1575, the word "product" has referred to anything produced...

. 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

Wholesale

Wholesaling, jobbing, or distributing is defined as the sale of goods or merchandise to retailers, to industrial, commercial, institutional, or other professional business users, or to other wholesalers and related subordinated services...

 price and retail price, as a percentage of wholesale. Other methods are also used.

Markup as a fixed amount

• Assume: Sale price = $2500, Product cost is $2000

Markup = Sale price - Cost

$500 = $2500 - $2000

• Assume the actual sale price was $2200

Markdown = List price - Sale price

$300 = $2500 - $2200

Initial Markup = List price - Cost

$500 = $2500 - $2000

Maintained Markup = Sale price - Cost

$200 = $2200 - $2000

Markup as a percentage

• Cost x (Markup + 1) = Sale price

or solved for Markup = (Sale price / Cost) - 1

• Assume the sale price is $1.99 and the cost is $1.40

Markup = ($1.99 / 1.40) - 1 = 42%

• To convert from markup to profit margin
  Profit margin
  Profit margin, net margin, net profit margin or net profit ratio all refer to a measure of profitability. It is calculated by finding the net profit as a percentage of the revenue.Net profit Margin = x100...
  
  :

Sale price - Cost = Sale price x Profit margin

Margin = 1 - (1 / (Markup + 1))

or Margin= Markup/(Markup + 1)

Margin = 1 - (1 / (1 + .42)) = 29.5%

Aggregate supply framework

P = (1+μ) W. Where μ is the markup over costs. This is the price setting equation

W = F(u,z) Pe . This is the wage setting relation. u is unemployment which negatively affects wages and z the catch all variable positively affects wages.

Sub the wage setting into the price setting to get the aggregate supply

Aggregate supply

In economics, aggregate supply is the total supply of goods and services that firms in a national economy plan on selling during a specific time period...

curve.

P = Pe(1+μ) F(u,z). This is the aggregate supply curve. Where the price is determined by expected price, unemployment and z the catch all variable.