Perhaps I was unclear. I do not mean to say that profit rates reflect on the production cost, but that the production cost can reflect on the retailer's market decisions, as the retailer would always take the profit factor into account when making those decisions.
Simplistically put, if the production of an item costs $10, and the retailer decides to sell it for $20 on the market, they make a profit of $10.
If the production of said item becomes a bit costlier and now costs $12, the retailer has two options:
- Raise the market price to $22 respectively, to preserve the $10 profit. - Keep the market price at $20, and now make $8 profit, thus relinquishing $2 of profit.
Which is a choice they have to make, given the new circumstances.
I am not an expert in economics so obviously I am open to being corrected on this, but basic logic seems to suggest these results.
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Date: 28/5/13 17:16 (UTC)Simplistically put, if the production of an item costs $10, and the retailer decides to sell it for $20 on the market, they make a profit of $10.
If the production of said item becomes a bit costlier and now costs $12, the retailer has two options:
- Raise the market price to $22 respectively, to preserve the $10 profit.
- Keep the market price at $20, and now make $8 profit, thus relinquishing $2 of profit.
Which is a choice they have to make, given the new circumstances.
I am not an expert in economics so obviously I am open to being corrected on this, but basic logic seems to suggest these results.