Black: Same deal with that PPU thingie, you buy it with a board that includes RAM and stuff and has a much lower production run than what a console maker would order. The production run is the more important part here, consoles get built in the millions while highend PC hardware sells a few hundred thousand or so. Consoles last for roughly five years while PC parts get dumped after one year. That ensures that you can recoup your R&D money (which is the largest part of most prices nowadays) much easier and allows you to sell these cheaper per unit. Why do you think NVidia was so pissed off when MS sold less XBoxes than projected and suddently the GPUs were more expensive to make?
Talon: You have a bit of a misconception of what constitutes physics in a game. Games are chjeaters extraordinaire when it comes to physics and graphics, very few things use the proper formulas. Lighting in a game isn't physics, explosions aren't physics (they are objects that apply damage and force* to other objects based on a falloff over distance, sometimes with a ray cast to prevent them from hitting targets behind cover). Player movement is HIGHLY simplified physics, usually there is only one law of physics implemented and that's gravity (usually with a different power than earth actually has). Mario is an entity that accelerates downward as long as no obstacle is under him and accellerates horizontally according to A-stick movement (unless he's on a slope that's flagged as slippery in which case he'll accellerate according to ground slope). His velocity is multiplied by a "friction" value that is probably constant unless the surface is flagged as slippery or his state is "sliding" (game entities are finite state engines). You might call that logic physics but usually it's only worthy of being called physics when it's a proper simulation that can at least simulate rigid body movements using gravity, object interaction (how much of that happens in SM64? The objects either move on, don't move at all or bounce back by a predefined amount) friction, etc. Where every object is somewhat equal and behaves according to a set of parameters that completely define it (is mass even implemented in SM64?).
*= Force doesn't exist unless you use a physics simulation, otherwise it just adds a bit to the movement vector, that's not proper physics.