How would an increase in labor costs due to minimum wage affect a small business owner’s pricing strategy?

An increase in labor costs resulting from a rise in minimum wage would likely necessitate adjustments in a small business owner's pricing strategy to sustain profit margins. When labor costs increase, the overall operational expenses of the business rise as well. Small business owners must cover these additional costs to maintain profitability since their expenses directly influence their pricing structures.

In practice, if a business owner faces higher labor costs without making corresponding adjustments to their prices, profit margins would shrink, making it unsustainable in the long run. By increasing prices, the owner attempts to offset the higher labor costs, ensuring that the business remains viable and profitable despite the increased expenditure on wages. This approach allows them to balance the higher costs while still providing goods or services to customers.

The other options do not align with common business practices. Lowering prices to attract customers in the context of increased costs could lead to losses, simplifying the pricing strategy does not address the need to adjust for increased costs, and failing to adjust prices could lead to diminished profits and potential business failure. Thus, raising prices in response to increased labor costs is a necessary strategic move for maintaining the financial health of the business.