Thursday, February 18, 2016

Understanding Inflation - Part 2

Think of running a business like it's a video game, like a level in Super Mario World. It's an adventure with many trials and obstacles, and you want to find Princess Profit at the end. I mentioned costs previously.

Variable Costs

Let's start with variable costs. Variable means that these costs go up as you produce more items:


Fixed Costs
Now we get to fixed costs which aren't proportional to output. They may rise or fall from year to year, but hopefully not by much, and these costs are usually predictable, so you can plan for them.

Unpredictable Costs
As with any project, life is full of surprises. These next costs are sure to come to you eventually, you just don't know when...
More Factors That Affect Price:
So, in every business, you have all these factors, working and changing at a micro scale and a macro scale, and you think the minimum wage, of all things, is going to affect inflation? I hope you can see now that it's all more complicated, and trying to control inflation is a bit like controlling the weather. Good luck.

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