Question

What effect does a rise in the cost of machinery or raw materials have on the cost of a good?

Answer 1

margins decrease on goods sold. Companies might have a gross margin requirement or "goal". So inflation or drought or supply shortages will increase cost of goods sold, and decrease gross margins. Because of this, companies may be forced to increase the price of their good so as to maintain their gross margin and to be able to pay off other fees like overhead, wages, admin expenses, etc.

Answer 2

Remember increase in cost of factors of production has a negative influence on the expectations of the consumers and the suppliers .remember overhead cost are applied to the actual cost therefore if the material cost increase this will increase the cost of production but decrease the profit margins .meaning the consumers wont demand more of the goods that will be supplied hence they will be expensive now ,because the supplier have to increase their prices slightly in order to recover the excess cost .inflation will be high .