Hike up costs on business and it gets passed onto the consumer
wrong
let's suppose you are the owner of a private healthcare company.
Let's suppose you explore your variable costs, and the price sensitivity of your potential customers.
You calculate that you can maximise your profits by charging two thousand pounds per client per year. Any more, and the number of clients drops and your revenues and profits go down.
Any less, and you margins are eroded, and your profits go down.
In year one, you make one million pounds profit, which you remit via Ireland, Switzerland, Ireland and Holland to your tax-haven in the Caribbean.
In year two, you make 1.2 million pounds profit, which you remit via Ireland, Switzerland, Ireland and Holland to your tax-haven in the Caribbean.
In year three, you had expected to make £1.4 million pounds of profit, but you are compelled by law to increase the wages of your lowest-paid employees from £7.80 to £12.00 per hours. You have one thousand such employees. They are a tiny fraction of your costs. You spend more on tea and biscuits for your conference rooms. On average, these employees work 30 hours a week, 48 weeks a year, so they gain on average £96 a week x 48 = £4,608. You have five hundred such employees. It dents your profits by a little over two million pounds.
You re-examine your costs and, perhaps because there has been zero inflation you still find that you can maximise your profits by charging two thousand pounds per client per year. You still make the same profit as you did the previous year.
Do you put up your prices taking you away from the optimum, peak-profit spot? And lose numbers of clients, which reduces your profits?
If there was a cut in the cost of biscuits, would you have reduced your prices? No, you would have congratulated yourself on improving efficiencies and growing profits.