What makes a $20,000 cd player cost 20,000?

The cost of a product is basically determined by labor, material and overhead. Top-notch players will use parts that are more expensive (i.e., you can get caps at Radio Shack for 49 cents but an audio quality equivalent cap can cost 20 dollars let's say.) Then you have to add the cost of R&D, insurance, sales and marketing, distribution, cost of money (borrowing to get the factory ready), and company human resources (health care, bennies, perks, etc.) On top of that there are taxes. Once all that is figured, then the question becomes profit margin, which is the toughest to figure since you have to take in factors such as demand and competition. All in all, it's way more involved but the bottom line is the cost of the parts required usually plays the biggest role.

It is rare that a product will be priced in the stratosphere for no other reason than just to make audiophiles take it seriously. Some do put bells and whistles on products such as exotic wood, lacquer finishes, overbuilt casings, hand-made components, etc, to make them appear better than others for those more interested in appearances - but may do nothing for the sound quality. But then again, some people can't get past the fact that they're listening to a $500 cdp (like the Marantz CD-63SE) instead of excellent quality sound for the money and then some.

Would the answer to the original post change if the price was, say, $8,000? Still not an insignificant amount of money...

There are 4 factors at play that make top-end audio gear very expensive.

1. Some fixed costs are higher in absolute terms, e.g. more extensive R&D to get the voicing right and achieve the desired balance of musical virtues... the last 10% of tweaking can take an infinite amount of time.

2. Fixed costs are spread out over a production run measured in the tens or hundreds.... as opposed to hundreds of thousands for mass market gear

2. Some variable costs are higher, e.g. high end capacitors vs generic stuff; more complex circuit designs may require more parts; small production runs may require manual assembly rather than machines

4. And, in some cases, because some people equate price with quality and some manufacturers find that they can afford to be less diligent while still charge more.

A high end manufacturer make several hundred or thousand dollars from selling a single item, but how many items to do they sell? I'd like to know about their total profits or, as a proxy, their lifestyle. I expect many are comfortable, but not extravagant, and that many are struggling.

I am not implying that all high end gear represents fair prices. Some items provide much better value than others. The burden is on us to listen and decide for ourselves. Don't get caught up in hype.