“If I need to make X dollars to pay the bills, and you just increased my expenses by Y, then my prices need to go up proportionately to X+Y...not counting lost customers.”
Agreed. Now, here’s what I’ve never understood -—
When the price of oil skyrockets, the oil refining companies make record profits, igniting cries graft and gouging which, on investigation, never turn out to be true.
Here’s my question -—
If the price of oil P1 goes up by V, then V would be passed through by the price increase of gas at the pump. The cost of refining the oil does not vary with price changes born by the incoming oil. If the refineries are only passing through V, where do the excess profits come from?
Because if you are pumping oil out of wells that are already drilled, the costs are sunk and spread out over time. So the marginal profits increase with every additional barrel pumped.