<p>It is just a missing parenthesis issue. The expression</p>

<p>$$\text{(P-MC/P)= -1/η}$$  should have been written</p>

<p>$$\text{((P-MC)/P)= -1/η}$$</p>

CC BY-SA 3.0
2018-01-18T06:52:10.260Z
The parenthesis don't make a difference for going from MC/P = 1+1/η to (P-MC/P)= -1/η... where did the +1 go on the right side of the equation?
Arthur 
CC BY-SA 3.0
2018-01-18T07:19:01.760Z
@Arthur Just carry out the math.
Alecos Papadopoulos
CC BY-SA 3.0
2018-01-18T03:55:15.760Z
2018-01-18T03:55:15.760Z
Alecos Papadopoulos
<p><strong><em>Problem:</em></strong> </p>

<p>My lecturer wrote the marginal revenue formula before writing the markup formula, indicating some sort of similarity between the two. </p>

<p><strong><em>How it was written on the board:</em></strong></p>

<blockquote>
  <p>Market Power being $\text{P&gt;MC}$</p>
  
  <p>$\text{MR} = \text{P  (1+1/η) = MC}$ (This being profit maximising condition for a monopoly)</p>
  
  <p>Can be written as:</p>
  
  <p>$\text{MC/P = 1+1/η}$</p>
  
  <p>Markup: $\text{(P-MC/P)= -1/η}$</p>
</blockquote>

<p><strong><em>Question:</em></strong></p>

<p>As much as I can see the similarity, I can't understand how he got to $\text{(P-MC/P)= -1/η}$ from $\text{MC/P = 1+1/η}$?</p>

<p>Index: </p>

<p><strong>P</strong> = Price,
<strong>MR</strong> = Marginal Revenue,
<strong>MC</strong> = Marginal Cost,
<strong>η</strong> = Elasticity </p>

CC BY-SA 3.0
2018-01-18T01:55:40.550Z
Perhaps it was or supposed to be $\frac{P - MC}{P} = - \frac{1}{\eta}$?
Matthew Gunn
CC BY-SA 3.0
2018-01-18T03:43:43.300Z
The markup formula is correct, in saying the more elastic demand was, the lower the markup visa versa, the more ineleastic demand was the higher the markup. Because the left side of the equation is percentage change in MC, so the higher P>MC then it makes sense that the markup would follow. My question is, did he derive the markup formula from the MR formula..?
Arthur 
CC BY-SA 3.0
2018-01-18T07:36:23.023Z
To be clear: is your problem that, starting from $P(1+\frac{1}{\eta})=\text{MC}$, you don't know how to get $\frac{P-\text{MC}}{P}=-\frac{1}{\eta}$? Because that can be achieved with straightforward algebraic manipulation. As a first step, write $P-\text{MC}=-\frac{P}{\eta}$.
Ubiquitous
CC BY-SA 3.0
2018-01-19T08:03:00.547Z
Champion mate, it was a whole lot simpler than I thought.. Thank you for that
Arthur 
<microeconomics><elasticity><monopoly>
Monopoly - Where is the Markup formula derived from?
Arthur 
# Monopoly - Where is the Markup formula derived from?

(Asked by: username_0 on 2018-01-17)

***Problem:***

My lecturer wrote the marginal revenue formula before writing the markup formula, indicating some sort of similarity between the two.

***How it was written on the board:***

> Market Power being $\text{P>MC}$
>
> $\text{MR} = \text{P (1+1/η) = MC}$ (This being profit maximising condition for a monopoly)
>
> Can be written as:
>
> $\text{MC/P = 1+1/η}$
>
> Markup: $\text{(P-MC/P)= -1/η}$

***Question:***

As much as I can see the similarity, I can't understand how he got to $\text{(P-MC/P)= -1/η}$ from $\text{MC/P = 1+1/η}$?

Index:

**P** = Price,
**MR** = Marginal Revenue,
**MC** = Marginal Cost,
**η** = Elasticity

**Tags:** microeconomics, elasticity, monopoly
> **Comments:**
> **username_1**: Perhaps it was or supposed to be $\frac{P - MC}{P} = - \frac{1}{\eta}$?  
> **username_0**: The markup formula is correct, in saying the more elastic demand was, the lower the markup visa versa, the more ineleastic demand was the higher the markup. Because the left side of the equation is percentage change in MC, so the higher P>MC then it makes sense that the markup would follow. My question is, did he derive the markup formula from the MR formula..?  
> **username_2**: To be clear: is your problem that, starting from $P(1+\frac{1}{\eta})=\text{MC}$, you don't know how to get $\frac{P-\text{MC}}{P}=-\frac{1}{\eta}$? Because that can be achieved with straightforward algebraic manipulation. As a first step, write $P-\text{MC}=-\frac{P}{\eta}$.  
> **username_0**: Champion mate, it was a whole lot simpler than I thought.. Thank you for that  

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## 1 answers

### Answer by username_3 on 2018-01-18. Score: 1

It is just a missing parenthesis issue. The expression

$$\text{(P-MC/P)= -1/η}$$ should have been written

$$\text{((P-MC)/P)= -1/η}$$

> **Comments:**
> **username_0**: The parenthesis don't make a difference for going from MC/P = 1+1/η to (P-MC/P)= -1/η... where did the +1 go on the right side of the equation?  
> **username_3**: @Arthur Just carry out the math.  

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