Q.Fill in the blank: In the mark-up theory, Price = ___ + mark up.

'Mark-up is planned profit' — True, by the very definition of mark-up pricing. 'For an industrial good, price is cost-determined and output is demand-determined' — also True, this is the standard full-cost pricing behaviour of manufacturing firms.

Main statement: Under mark-up (or full-cost) pricing, a firm sets its selling price by adding a profit margin ('mark-up') on top of its average cost of production:

Price = Average Cost + Mark-up

This mark-up is chosen in advance by the firm as its target/planned profit margin (often expressed as a percentage of cost), rather than emerging automatically from market supply-and-demand forces as in a competitive auction market. So calling mark-up 'nothing but planned profit' correctly describes its role — it is True.

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Blank 1: administratively/administered. Blank 2 (Or): profit margin.

Fill in the blank 1: In the case of manufactured/industrial goods, price is administratively (or 'administered') determined — large producers set the price themselves, typically based on their cost of production plus a desired margin, rather than letting it be decided purely by the instantaneous interaction of market demand and supply (as happens with most agricultural goods).

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Mark-up (full-cost) pricing theory was put forward by Hall and Hitch, based on their survey findings of how firms actually price their products.

R. L. Hall and C. J. Hitch, in their influential 1939 paper, surveyed British businessmen and found that firms generally did not set prices using the standard marginalist rule of equating marginal revenue with marginal cost. Instead, firms were found to add a conventional profit margin, or 'mark-up', to their average (full) cost of production - covering average variable cost plus an allocated share of average fixed cost - to arrive at the selling price. This came to be known as mark-up pric …

Mark-up pricing theory assumes a horizontal (perfectly elastic) long-run industry supply curve.

The mark-up (or 'cost-plus' / 'full-cost') pricing model is an alternative to the strict marginalist MR = MC rule, often used to describe pricing behaviour in oligopolistic/imperfectly competitive industries. Under this model, a firm first estimates its average (total) cost of production at a 'normal' level of capacity utilisation, and then sets its selling PRICE by adding a fixed percentage MARK-UP (profit margin) over that average cost: Price = Average Cost x (1 + mark-up rate). Because average cost is assumed to be roughly constant over the relevant range of output (and the mark-up percentage itself is assumed not to vary systematically with the scale of output), the firm - and, in aggregate, the industry - is effectively willing to supply ANY quantity demanded at this mark-up price without needing the price to rise as quantity incre …

In mark-up pricing theory, firms set price by adding a profit mark-up on top of average cost.

The mark-up (or full-cost) theory of pricing, associated with Hall and Hitch, describes how many real-world firms actually set prices — not by equating marginal cost and marginal revenue as in standard theory, but more pragmatically by adding a profit margin ('mark-up') on top of their cost of production. The pricing rule is:

Price = Average Cost + Mark-up

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