To keep things very simple, let's say you run hot dog stands in business parks from 10am to 2pm Mondays through Fridays and sell only hot dogs and hire only one part-time employee to staff them. Assumptions are you will sell 2,000 hot dogs a month and these are your monthly costs for each stand:
Stand rental fee (with cookware and utilities included): $1,000/mo
Wholesale cost of hot dog and bun: $1.50 x 2,000 = $3,000/mo
Employee salary: $10/hr x 88 = $880 (avg. 88 work hours per mo)
Total monthly costs to operate business is $4,880
Again, I'm being very simplistic and not considering capital costs and miscellaneous expenses (such as occasional repair/replacement of cooking equipment)
OK, so let's say you charge $3.00 per hot dog. That gives you a monthly revenue of $6,000/mo for a net profit of $1,120 - or a margin of 18.6%. Which I should add is profit BEFORE taxes.
Now the federal government steps in and says you must now pay your workers a minimum wage of $15.00. Now your labor costs rise from $880/mo (per stand) to $1,320. Total expenses are now $5,320 leaving you with a net profit (before taxes) of just $680 - or about an 11% margin with which to pay yourself AFTER taxes and AFTER miscellaneous and any capital expenses, reducing you to a break even situation at best.
The logical thing to do here, in order to keep the same margin, is to raise the price of your hot dogs from $3.00 to about $3.25.
But wait, it doesn't stop there. The vendor supplying you with hots dogs and buns are also seeing increased costs as they now have to pay their truck drivers more and people back at the processing plant and bakeries have to get paid more too. So they pass their costs on to you and suddenly you have to charge closer to $3.50 for that dog.
Now the workers in the business parks start buying less hot dogs. More of them decide to bring a lunch to work from home instead. So now you have to react to the declining revenues by jacking up the price of your hot dogs even more. Now you need to consider reducing the number of the hot dog stands you operate so that you can cut your expenses in order to compete. People get laid off.
I think you gave a fine example except you forgot the declining value of the dollar, i.e. inflation. You can’t buy this year what you could last year with the same dollar!
That kind of wisdom used to be taught in high school business class.
Probably disappeared sometime in the 70s....