The equation I gave is the equilibrium point. Market forces are always pushing things towards that equilibrium. If a business is operating far away from it, competitors will inevitably emulate it and drive it back to the equilibrium.

> how does the competitor learn my secret?

The more valuable the secret is, the more effort competitors will expend to learn it. The reason we have a patent system is competitors are pretty good at finding out secrets.

The only trade secret I know of that has lasted a long time is Coca-Cola's formula. And yet Pepsi competes successfully with them anyway.

Do you have an example of a trade secret that is enabling unusually high profit margins with poorly paid employees?

> in the real world we have businesses making profits in excess of their risks

A lot of risks do not seem so risky in hindsight. Like Musk's creation of Tesla and SpaceX. I bet risk will look very different to you if you're faced with risking your own money on a venture.

> clearly your argument is flawed since most employees are not paid anywhere near the value they produce

No evidence presented for that.

Okay we've gone off track here. I just find your "equation" makes no sense.

Firstly, the types of your variables don't match. Risk and $/year can't be added together. And adding per employee variables to a per company variable (risk) is yet another typing/dimension issue.

Secondly, adding "opportunity cost" is meaningless. Adding a dependency on the next best employment choice makes no sense. Also an opportunity cost only exists in a non-equilibrium market - I can't see why you argue for equilibrium while having opportunity cost. Why would an employer care what the opportunity cost was - and you can't argue that it is an equilibrium due to employees demand - because there isn't an equilibrium (see your previous wage example).

Finally, if there is a marginal change in revenue, your equation says that is reflected in employee wages. Imagine a low-risk company where profits are fairly static (say close to risk-free rate of return). If revenues go up, your assumption is that employees are perfectly fungible between businesses and that employees will demand higher wages to capture the revenues (assuming transaction costs are zero so no spread). But employees don't know their value, so there is a distribution of bids. If employees are perfectly fungible then a business will buy the employee that underbids, and the business will make an "excess" profit.

> No evidence presented for that.

That's a diversion. Anecdotally I've experienced it many times as an employee and as a business owner.

The real world has too many counter-examples of disequilibrium - and you are trying to make micro-economic arguments that depend on perfect market equilibrium.

As a business owner, I'm surprised you don't know the term opportunity cost. What it is is the investment returns you can get by doing something simple and safe, like investing in bonds. There's no reason to be in business if you can't do better than that.

> But employees don't know their value

Your assumption that employees are stupid and ignorant is false.

> Anecdotally

I.e. you don't really have the data.

> that depend on perfect market equilibrium

Nope. I said that market forces push it in that direction.

> I'm surprised you don't know the term opportunity cost.

Assumptions. I know it. I'm saying that it makes zero sense to put it in your equation as you have. Your equation appears to be per employee (but you are not talking about the employee opportunity cost). You are adding in the business opportunity cost of money to your equation - a per business cost not a per employee cost. Again you are mixing implicit types which makes your equation meaningless.

> Your assumption that employees are stupid and ignorant

You are making the assumption. I never said that and I certainly don't think it.