I can't talk for everyone, but in my experience the markup on gear is pretty steep because they don't make much money, if anything, on many other aspects of their industry. For example, in our area, there is very little call for local diving, so the expenses of owning, maintaining, and filling tanks is nearly 100% overhead to support instruction. If the shop were near the ocean, then they could make money filling tanks, but that is not an option here.
The shop has its own pool, which comes at an enormous cost for maintenance, so when you look at how much they make for instruction, don't forget to subtract that cost.
The shop plans organized trips and tries to make money on them, but that model is becoming obsolete with the ease of Internet travel, and I know they have broken even or even lost money on some trips.
I am not a shop employee, but when I look at what I estimate to be the cash flow of the operation, I honestly find it hard to believe that are able to stay in business.
So, yes, there is a pretty good markup on equipment.