Markup (or price spread) is the difference between the selling price of a good or service and its 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 the 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

Markup

Below shows markup as a percentage of the cost added to the cost to create a new total (i.e. cost plus). A different method of calculating markup is based on percentage of selling price. This method eliminates the two-step process above and incorporates the ability of discount pricing. Comparing the two methods for discounting: 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: or

Aggregate supply framework

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