“Let’s say we’re capable of selling out at 10 units every day. Our cost for the ingredients is 10 copper per unit. For 10 units over 30 days, that comes up to 3000 copper. On the other hand, let’s assume that rent and all other costs total to 900 copper for the month. Just as I said when we began, business is about making money by spending money. That means we need money in the first place.”
“Y-Yes. From what you’re saying, we would need 3900 copper to begin, right?”
“Exactly. That’s the money required for us to earn money. Let’s call it the capital cost.”
Mia wasn’t saying anything, but she’s probably already done formulating all the profit ratios and functions for fluctuations brought about by sales. I’ll have her help out later.
“So, now I’ve taken the 3900 copper that I’ve desperately accumulated as my capital cost, and I start my new business. The deliciousness of pain perdu gives me a reputation, and the business is a success. I’m now able to sell 10 units per day. I’m selling each unit for 20 copper, so in one month, I make 6000 copper. In other words, I started a business that spends 3900 copper, and made 6000. Meaning I’ve profited by 2100 copper in a month. For the average commoner, this is enough money to live for over half a year.”
“Business really is amazing, isn’t it? But... It really is delicious, so it might just be fully deserved.”
Even though I was putting it in a relatively depraved way, Alfina’s thoughts remained as sweet as ever. However, the sweet portion of our lesson is about to vanish completely. “People don’t live in a bubble,” was one of my professor’s catchphrases.
I exchanged looks with Mia.
“Now then, let’s say there’s someone out there watching me carefully as I celebrate over the huge profits I’m raking in. I’ll leave this role to Mia. Okay, Mia, what do you do now?”
“I just need to crush your shop, right?”
“Y-Yeah, that’s right.”
“Huh?!”
Alfina was left completely shocked over our short exchange. I guess it’s hard to understand when we suddenly jump to this topic, huh? Actually, Miss Mia? This isn’t a latent aspiration of yours, is it?
“Let’s say I’m the child company of a major mercantile house. And now, I hear of a bothersome... conceited merchant, selling strange confections in the capital and making a killing from it. I pretend to be a customer, and after investigating the shop for myself, I chuckle. Pain perdu is not only composed of easily attainable ingredients, it’s simple to make.” Mia looked at me with a provocative gaze. “I have 200 silver, which amounts to 20000 copper, on hand as capital. Now, what should I do to crush the conceited little peddler and monopolize all profits from this?” Mia turned to Alfina and asked.
“U-Um... You’ll be doing something bad... I think? So, uhh, you buy up all the ingredients...?”
Ooh, I’m impressed she could come up with that answer.
“No, I will challenge Ricardo using purely proper methods. And that’s by taking on debt.”
“...A debt?”
Alfina cocked her head. It’s pretty hard to understand taking on debt despite being rich, isn’t it? However, the greatest power of the rich is the ability to take on debt. In the capitalistic system of Earth, you can even say that business is a game where you compete to see who is capable of taking on the biggest debt.
“I use my 200 silver and the trust in my house as collateral, and borrow 200 silver. Meaning, I now have a total of 40000 copper. I’ve now prepared over 10 times Ricardo’s capital.”
Alfina listened attentively to Mia’s “Crush Ricardo Plan.”
“Using 10 times his capital, I prepare a shop three times as large as his, hire three times the employees, and stockpile a large amount of ingredients. I then sell 10 times the amount of pain perdu that he can at a price of 16 copper per unit.”
Mia placed 16 copper coins next to the 20 copper coins I had on the left.
“So you’re selling it cheaper than Ricardo, right? I understand that this will trouble Ricardo, but will your shop be okay like that, Mia?”
“Please think back to what we talked about earlier. When the business grows, the cost of a single unit of merchandise goes down. Even though the shop is three times bigger, the rent won’t be more than double. And above all else, with such a large difference in scale, it will even affect the cost of the ingredients. That means that the ingredients will only cost us seven copper a unit.”
“It becomes that much cheaper?”
Even here in this world, where goods are not overflowing with abundance, the difference in scale between 10 and 100 items is big enough for a 30 percent drop in price to be a reasonable assumption. To the seller, the labor cost for a single transaction doesn’t change for 10 times the amount sold. And to take it a little further, the capital that Mia possesses also has a charm in terms of trust for future business.
“Let’s compare the two shops. Ricardo’s shop requires 13 copper per unit. Mine costs 7 copper for ingredients, and including the other expenses, let’s say it goes up to 8 copper per unit. In other words, Ricardo is making a 7 copper profit per unit, and I’m making 8.”
“So even though you’re selling it for cheaper, you’re the one making far more money... But, oh yes, do debts not require a payment of interest? Ricardo is only using his own money, so there’s no interest.”
Well, that’s what you’d think, huh? Debts are a loss. That’s the normal feeling people get from them.
“The interest from a debt is the same as rent. The cost per unit drops dramatically as we sell more goods. My profit off each unit sold is 8 copper, and over the course of a month, I’ll sell 3000 units. That means I make a profit of 24000 copper, or 240 silver. Even if the interest is 10 percent a month, that only sums up to 20 silver. I can easily afford it.”
And that’s how it goes. Interest is the same as a fixed cost. It’s a simple expense to doing business.