Why is the cost of military equipment so expensive?

Somebody has to pay for the R&D. May as well be the taxpayer. (said Tongue in Cheek)

Actually for a lot of things, it's not. Your average M16 is cheaper per unit than a commercial AR15 would be for you or I at a gun store. That is the power of bulk buys. Now for major end items like an M1 tank or the F35, a lot of it is because companies will lowball their bids to get the contract knowing that there will be eventual cost overruns, particularly if there is still a lot of R&D to be done. The government doesn't do a good job of containing these overruns.

Because the manufacturers know they can get the money.

Let me give you an example. When I was Quality Assurance Supervisor for submarines, a ShipAlt came out saying a certain bolt had to be replaced with a "better" one. For submarines there are different classes of equipment based on whether or not it is in contact with full sea pressure, nuclear stuff, etc. Well these were going from just run of the mill bolts to what was called Cat 1 bolts. Suddenly the price on those bolts sky rocketed. But a supply person noticed that we could buy SubSafe bolts (a higher quality) and then downgrade them to Cat 1 for half the price. The manufacturer was pissed to say the least.

But that is how it works. Hammers that cost thousands of dollars are the norm. The politicians that agree to these things are not worried about cost. They are worried about votes. They want to bring money to their district so will do whatever, including paying huge amounts for cheap things.