Part 1

1.1 Company Background

Johnson & Johnson (J & J) is one of the largest health care and most diversified

companies in the world. It embraces research and science by bringing innovative ideas,

products and services to advance the health and well-being of people. Employees of the

Johnson & Johnson Family of Companies work with partners in health care to touch the lives

of over a billion people every day, throughout the world.

Johnson & Johnson (J & J) publishes "Modern Methods of Antiseptic Wound

Treatment," which quickly becomes one of the standard teaching texts for antiseptic surgery.

It helps to spread the practice of sterile surgery in the U.S. and around the world. Early in

1900, the company is the first company to mass produce dental floss to make it affordable so

that people can take better care of their teeth. The floss is originally made from leftover

suture silk. As part of its commitment to first aid, Johnson & Johnson publishes the first Aid

Manuals by using proven best practices from leading physicians. The manuals are packaged

with the Company's First Aid Kits.

In 1924, the first overseas operating company of Johnson & Johnson opens in the

United Kingdom with the innovation of baby toilet powder. Johnson’s Baby Shampoo with

no more tears formula enters the market as the first mild and soap-free shampoo designed to

be gentle enough to clean babies' hair but not irritate their eyes.

Johnson & Johnson acquires Pfizer Consumer Healthcare, which brings in heritage

consumer brands such as Listerine Antiseptic. The Company supports the United Nations’

Millennium Development Goals to improve the health of mothers and children in developing

countries. As a founding sponsor, Johnson & Johnson helps to launch the United States’ first

free mobile health service, provide health information via text messages for pregnant women

and new mothers. Johnson & Johnson celebrates 125 years of caring and looks to the next

125 years of transforming care for patients, consumers and communities around the world.

1.2 Product Introduction

Johnson’s Baby Lotion 500ml (Mildness) is a lotion that specially formulated to be a

gentle and soothing moisturizer on baby’s skin. This ultra-gentle lotion is the babies’ best

friend to help to protect their skin from dryness and irritation. Fast-absorbing formula with

rich emollients of Johnson’s Baby Lotion 500ml (Mildness) leaves delicate skin of babies

feeling soft, smooth, and not greasy. Besides, this lotion is clinically proven mild,

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hypoallergenic and dermatologist-tested with unmistakable baby fresh smell. It is great to use

as a barrier cream on the babies’ skin after they bath. Johnson's Baby Lotion 500ml

(Mildness) can also be used as a light body lotion for adults for all over skin softness.

Therefore, this product passes down from generation to generation, on baby and grown up

skin which is trusted by mother for over 100 years.

1.3 Johnson's Baby Lotion 500ml (Mildness) as a Normal Good

Normal goods are any goods for which an increase in income usually leads to an

increase in demand and vice versa, but price of the goods remain unchanged. In contrast,

inferior goods are goods that decrease in demand when the income of consumers rises.

Johnson's Baby Lotion 500ml (Mildness) is categorized as a normal good because as

individual receives more income, they tend to increases their purchases on this product. As

income rises, consumers shift to purchase their initial preferred brand which is normal good

and decrease their demand for the inferior good. The income of each consumer will affect the

demand of Johnson's Baby Lotion 500ml (Mildness). When the income of Johnson's Baby

Lotion 500ml (Mildness) increases, the purchasing power of consumer will increase as well

and thus consumers will buy more units of the baby lotion. As a result, its demand will

increase. This indicates that the income of consumers influences the demand of baby lotion

and determines whether it is a normal good or an inferior good.

1.4 Substitute Products of Johnson's Baby Lotion 500ml (Mildness)

Substitute products means different goods that satisfy the same needs of the

consumers which can be used to replace one another. Johnson’s Baby Lotion 500ml

(mildness) has its substitute products which also known as its competitor. The substitute

products of Johnson’s baby lotion are Nivea Body Lotion and Vaseline Body Lotion.

According to the law of demand, when the price of Johnson’s Baby Lotion 500ml (mildness)

is lower than the other lotion products, consumer will buy more units of Johnson’s Baby

Lotion. This is because the price of Johnson’s Baby Lotion is relatively cheaper compared to

the other brands. If the substitute brands of Johnson’s Baby Lotion 500ml (mildness) such as

Vaseline Body Lotion has a lower price, the demand for Johnson’s Baby Lotion 500ml

mildness) will be affected as the demand of Vaseline Body Lotion is increasing will cause the

demand for Johnson’s Baby Lotion 500ml (mildness) to decrease. When the price of

Johnson’s Baby Lotion 500ml (mildness) increases, the demand for its substitute products

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increase as well. In conclusion, Johnson’s Baby Lotion 500ml (mildness) and its substitute

products have the positive relationship.

1.5 Method of Data Collection

On 4th of October 2011, after the tutorial class of Microeconomics and

Macroeconomics, each of our group members is given the duty to find a particular product or

service which is suitable and compatible for price analysis regarding the requirement of the

assignment.

On 7th of October 2011, we have finally come up with a decision to choose Johnson’s

Baby Lotion 500ml (Mildness) as our product. After that, our group leader distributes the

tasks to each of the group members evenly so that we are able to do the price of product

research. Meanwhile, some of our group members are going back hometown as they can do

the research in the different places. Our group members have collected the price from certain

mini markets, supermarkets and hypermarkets from 4 different states which are Selangor,

Pahang, Perak and Penang. One of our members had made a research on the price of

Johnson’s Baby Lotion (500ml) in Kedai Ubat Yen Sheng, D.E. Pharmacy and Jaya Jusco

which are located in Perak while our group leader had also searched for the price of the

product at Pasaraya Lit Onn Sdn. Bhd which is located at Selangor.

On 8th October 2011, one of our group members had also done the price research in

Tunas Manja (Air Putih) Sdn Bhd and Pasaraya Eng Hong Sdn Bhd which is situated in

Pahang. At the same moment, another member had searched for the price of Johnson’s Baby

Lotion in Sunshine Farlim which is located in Penang. We continued our research at Tesco

Kampar, Pasaraya Target Sdn Bhd and Pasar Mini Tenaga Cergas in Kampar, Perak on 15th

October 2011. Thus, our price research of the product has been done on 17th October 2011.

After we managed to collect the price of Johnson’s Baby Lotion (500ml) in 10

different locations from 4 states, one of our group members had tabulated the collected data

into table form and we began our next group discussion in order to distribute the task equally

among group members so that we can carry out our parts in a systematic way. We had done

the research for the product’s history through the Internet and had obtained the information

from lecture notes, references book and textbook from the library regarding the economic

theories such as law of demand and supply.

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Part 2

2.1 Johnson’s Baby Lotion 500ml (Mildness)

NO SHOP NAME ADDRESS PRICE State

1 Sunshine Farlim 294, Jalan Thean Teik, Bandar Baru Air Itam,

11500 Pulau Pinang.

RM 16.80 Penang

2 Kedai Ubat Yen

Seng

Jalan Dato Lau Pak Kuan, Ipoh RM 15.60 Perak

3 D.E. Pharmacy Jalan Sultan Azlan Shah Utara, Ipoh Garden

South. 31400 Ipoh.

RM 16.60 Perak

4 Jaya Jusco No. 2, Jln Teh Lean Swee off Jalan Sultan Azlan

Shah Utara 31400 Ipoh, Perak

RM 16.80 Perak

5 Pasaraya Lit Onn

Sdn Bhd

No 100 & 102 (ground floor) Lebuh Turi Chi

Liung, 41200 Klang, Selangor Darul Ehsan.

RM 13.50 Selangor

6 Pasar Mini Tenaga

Cergas

2259, 2260 Jalan Batu Sinar 31900 Kampar,

Perak.

RM 17.90 Perak

7 Pasaraya Target

Sdn.Bhd

Lot 7348, Jalan Kranji, Kampar, Perak, 31900. RM 14.99 Perak

8 Tunas Manja (Air

Putih) Sdn Bhd

B-30-B38, Jalan Air Putih, 25300 Kuantan,

Pahang.

RM 16.50 Pahang

9 Tesco Jalan Kampar, Jalan Kampar Perdana,Taman

Kampar Perdana, Perak.

RM 15.90 Perak

10 Pasaraya Eng

Hong Sdn. Bhd.

C-582, Jalan Dato Lim Hoe Lek, Kuantan,

Pahang, 25200

RM16.90 Pahang

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Part 3

Our group had made the research on the prices of the Johnson's Baby Lotion 500ml

(Mildness) in 10 different locations. From our analysis, we found that different locations are

selling the different prices and the prices range from RM 13.50 to RM 17.90. In brief, even

though there are different selling prices from different shops, Johnson Baby Lotion is sold at

the same price in some locations.

We have totaled up all the prices of different locations and divided by 10 to calculate

the average price of Johnson Baby Lotion. The average price of the product is RM16.15. The

calculation is shown as below:

RM [16.80+15.60+16.60+16.80+13.50+17.90+14.99+16.50+15.90+16.90 ]10

= RM 16.15

We had made comparison between the 10 prices of different locations that we had

collected from our research by comparing it in the aspects of minimum and maximum price,

type of stores and location of product.

3.1 Comparison by Minimum and Maximum Price

First of all, the price research table has shown that the 10 stores from 3 different states

which comprises of Perak, Penang and Selangor charge different prices for Johnson Baby

Lotion 500ml (Mildness). The table illustrates that Pasar Mini Tenaga Cergas in Kampar,

Perak charged the maximum or the highest price of RM17.90 for Johnson’s baby lotion

whereas Pasaraya Lit Onn Sdn.Bhd which located at Klang, Selangor sells the minimum or

lowest price which is RM 13.90 for this product. Thus, we can observe that the difference

between the maximum and minimum price of Johnson’s Baby Lotion 500ml (Mildness) is

RM 4.

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3.2 Comparison by Types of Stores

Secondly, the prices charged on Johnson Baby Lotion (Mildness) for each shop is

varies may be affected by the types of stores. The types of stores in our price analysis of

Johnson’s Baby Lotion 500ml (Mildness) included hypermarkets, supermarkets, pharmacy,

Chinese medicine shop and mini market. There are three hypermarkets, four supermarkets,

one pharmacy, one mini market and one Chinese medicine shop. We have compared the price

of Johnson’s baby lotion by comparing the average price of each type of store.

The average price of three hypermarkets is RM 16.50, RM 15.50 for four

supermarkets, RM 16.60 for pharmacy, RM 17.90 for mini market and RM 15.60 for Chinese

medicine shop. The highest average selling price of this product is RM 17.90 which is sold by

Pasar Mini Tenaga Cergas under the category of mini market while the category of

supermarkets sells the product at the lowest price which is only RM 15.50. This has shown a

difference of RM 2.40 between the highest price and lowest price for Johnson Baby Lotion

500ml (Mildness) based on types of stores.

6

PASARAYA

TARGET

SDN BHD

KEDAI U

BAT YEN

SENG

D.E PHARMACY

JAYA

JUSC

O

PASARAYA

LIT O

NN SDN BHD

SUNSH

INE FARLIM

PASAR M

INI TEN

AGA CERGAS

TUNAS M

ANJA (A

IR PUTIH) S

DN BHDTE

SCO

PASARAYA

ENG HONG SD

N BHDRM0.00 RM2.00 RM4.00 RM6.00 RM8.00

RM10.00 RM12.00 RM14.00 RM16.00 RM18.00 RM20.00

3.3 Comparison by Location of Product

Thirdly, the price of Johnson Baby Lotion 500ml (Mildness) may be influenced by the

factor of geographical location of product. The prices of the product that we had researched

are sourced from four different states comprised of Perak, Penang, Selangor and Pahang.

There are 6 stores from Perak, two stores from Pahang and one store from Penang and

Selangor respectively. We have compared the average prices between these four states and

we can observe that the average price for Perak is RM 16.30, RM 16.70 for Pahang, RM

16.80 for Penang and RM 13.50 for Selangor. The price analysis illustrates that Penang sell

the product at the highest price of RM 16.80 whereas Selangor has the lowest selling price of

the product which is RM 13.50. There is a different in price of RM 3.30 between the highest

and lowest selling price of Johnson Baby Lotion 500ml (Mildness) based on different

location of products.

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Penang Perak Selangor PahangRM0.00

RM2.00

RM4.00

RM6.00

RM8.00

RM10.00

RM12.00

RM14.00

RM16.00

RM18.00

Hypermarket Supermarket Pharmacy Chinese Medicine

Shop

Mini MarketRM14.00 RM14.50 RM15.00 RM15.50 RM16.00 RM16.50 RM17.00 RM17.50 RM18.00 RM18.50

Part 4

4.1 Types of Market

Johnson's Baby Lotion 500ml (Mildness) is a product in monopolistic competition

market. In this market, Johnson & Johnson has the characteristics of many sellers and buyers,

differentiated product, price makers and spend money in advertisements to convince

consumers.

Other than Johnson & Johnson, there are many sellers in this market such as Nivea,

Pureen and Aveeno because the easy market entry leads to the increase in the number of

competitors which will compete with Johnson & Johnson. Therefore, the company spends a

large amount of money in differentiating itself from competitors which are also selling

similar products. Its effort can be seen in the product of Johnson's Baby Lotion 500ml

(Mildness). Johnson & Johnson invited dermatologists to test whether it is mild enough for

delicate newborn skin. Therefore, this product is popular among new mothers as it provides

the gentlest and mildest care for their babies.

As a monopolistic competitive firm, Johnson & Johnson is a price maker company

that set its own price for its products. Johnson & Johnson charges higher prices compared to

its competitors because it develops varied products by recognising different types of skin. For

example, Johnson & Johnson’s “Nourishing Renewal Lotion” nourishes the skin with long

lasting moisture and vitamin antioxidant which is safe to use by different age of consumers.

Therefore, the products are sold at higher prices for the unique benefits of products.

In addition, Johnson & Johnson also spends money in advertisements to convince

their consumers. Every year, it will advertise its products in different channels such as

magazines, newspaper, television and internet. By promoting its products through

advertisements, Johnson & Johnson has attracted new customers bases who do not know its

products well before and promote its unique formula and benefits of their products.

4.2 Determinants of Demand

Demand is the ability or the willingness to purchase particular goods and services at a

given point of time. According to the law of demand, the quantity of a good or service

demanded varies inversely with its price, ceteris paribus. Therefore, when the price of

Johnson’s Baby Lotion 500ml (Mildness) falls, the quantity demanded increases. In old town

of Kampar, the price of Johnson’s baby lotion is the lowest in Perak which is RM 14.99,

therefore its demand is the highest; whereas in new town of Kampar, the price is the highest

in Perak which is RM 17.90. Therefore the demand is the lowest.

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Number of Buyers

An increase in the number of buyers increases the demand for the Johnson’s baby

lotion. When there is an increase in the potential customer population, the demand for this

product will increase and vice versa. The demand for baby lotion rises as the population

increases because the added populations which consists of new mothers in Kampar housing

area where the lotion is use to moisturise their babies’ skin as well as their own skins because

Johnson’s baby lotion has been advertised to include mothers as a target market since 2009.

Besides, in Kampar new town, there is also an increase in number of students in

Kampar as University Tunku Abdul Rahman (UTAR) offers many new courses recent years

such as Doctor of Philosophy and Master of Engineering Science. The intake of UTAR in

Kampar in 2007 had an enrolment of less than 1,000 students. In 2011, it has a population of

more than 9,000 students. (Refer to references). Since the population of students increased,

the number of buyers of Johnson’s baby lotion is increases as well. This is because students

are one of the main consumers who use Johnson’s baby lotion nowadays. Johnson’s baby

lotion has its product flowing for every age group & segment. Teenagers are also the target

market of Johnson baby lotion.

Expectation

Sometimes, the demand for Johnson’s Baby Lotion 500ml (Mildness) in a given

period will dramatically increase or decrease because consumers expect the product to change

in price in future. If people expect the future price to be higher, they will purchase more of

this product now before the price increase, vice versa. If the consumers expect the price of

Johnson’s Baby Lotion to fall soon, they may be less willing to buy today as they will wait

for the price to decrease. For example, when the price of Johnson’s baby lotion shows on the

catalogue of Tesco Kampar is in promotion with a lower price in a future date, customers will

only buy it during the promotion as they have expected the price to be lower in future.

4.3 Short Run and Long Run Equilibrium

The demand curve of this company is a downward

sloping curve. Its marginal revenue, MR curve lies below

the demand curve or average revenue curve, AR. In short

run, Johnson & Johnson compares the price and average

total cost of Johnson’s Baby Lotion 500ml (Mildness) to

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determine whether it is earning an economic profit (P> ATC), losses (P< ATC) or zero

economic profit (P=ATC).

According to the theory, Johnson & Johnson can only earn normal profit in the long

run as the demand will decrease eventually. Its demand curve will have been shifted as other

firms or competitors such as Nivea has entered the market due to the free market entry and

increase the competition. The market share of Johnson & Johnson will fall due to more

variety for consumers. Therefore, in long run, the products of Johnson & Johnson can no

longer be sold above the average total cost and no longer have an economic profit. With the

price of product equals to the average total cost (ATC), Johnson & Johnson can only earn a

normal profit. As the average total cost of Johnson’s Baby Lotion 500ml (mildness) equals to

the average revenue, equilibrium is acquired.

However, from the financial annual report 2010, we found out that Johnson &

Johnson is making profits for its operations. Johnson & Johnson is in operating in profit with

net earnings for continuously six years. This indicates that Johnson & Johnson earns an

economic profit in long run instead of zero economic profit.

4.4 Elasticity

The price elasticity of demand measures how responsive quantity demanded is to a

price change. We compare the size of the change in quantity demanded of Johnson’s Baby

Lotion 500ml (mildness) with the size of the change in price in different locations and stores.

According to the law of demand, there is an inverse relationship between the price of product

and quantity demanded by consumers in a given period of time, ceteris paribus. Due to the

elastic demand curve, as any stores adjusts a minor change in the price of Johnson’s baby

lotion, the quantity that the consumers are willing to purchase will have a large change. This

shows that the demand curve of Johnson’s Baby Lotion is elastic as the percentage change in

quantity demanded for this product is more than the percentage change in price. The total

revenue of can be increased by lowering the price as the percentage increase in quantity

demanded by the consumers is greater than the percentage reduction in price. Pasar Mini

Tenaga Cergas in Perak can earn more profits by lowering the selling price of the baby lotion.

The price elasticity of demand of Johnson’s Baby Lotion 500ml (mildness) is

depending on the availability of close substitutes. Since Johnson’s Baby Lotion 500ml has

many close substitution products such as Pureen, it is considered as elastic. The more

substitutes are available for Johnson’s Baby Lotion, the more elastic the demand is. Since the

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price of it is elastic, consumers are very sensitive to its price change. For example, consumers

will be sensitive to its price that is sold in Pasar Mini Tenaga Cergas. When its price is higher

than other substitution products, consumers may switch to other brands in fact.

The demand of Johnson’s Baby Lotion 500ml is more elastic in long run when

compared to short run. In short run, the quantity demanded of consumers is less influenced by

the increase in price of Johnson’s Baby Lotion 500ml whereas in long run, consumers have

more time to find suitable substitute product such as Nivea Baby Lotion and will change their

consumption patterns in long run.

4.5 Location of Stores

Based on our price analysis on Johnson’s Baby Lotion 500ml (Mildness), we figured

out that there is a price difference between the products according to the geographical

location of the shops.

Pasar Mini Tenaga Cergas sells Johnson’s Baby Lotion at the price RM 17.90. It is

the highest price among the 10 different places. Pasar Mini Tenaga Cergas is located at

Kampar, Perak. Kampar is considered as a rural area because the consumers are mostly

comprised of senior citizens as well as University Tunku Abdul Rahman (UTAR) students.

Pasar Mini Tenaga Cergas is a mini market which is located far from the Johnson & Johnson

manufacturing factory, Ipoh, Perak. The time needed to send the product to Pasar Mini

Tenaga Cergas is about one hour. Therefore, the seller will increase the price by adding in the

transportation expenses. Besides, as Pasar Mini Tenaga Cergas is a monopolist where it is the

only store that sells Johnson’s Baby Lotion (Mildness) with volume of 500ml in the new

town area in Kampar, it can charge a higher price on this product to earn more profits.

Pasaraya Lit Onn Sdn. Bhd. sells Johnson’s Baby Lotion 500ml in the lowest price

among the 10 different places, which is RM 13.50. Pasaraya Lit Onn is a supermarket which

is located near to the Johnson & Johnson manufacturing factory, Shah Alam. The product can

be sent to Pasaraya Lit Onn within 10 minutes. Thus, the supplier charges less transportation

expenses on it. Pasaraya Lit Onn is the only supermarket located in Klang’s residential area.

In a residential area, the rental fees and operating cost of Pasaraya Lit Onn will be much more

lower compared to the hypermarkets or supermarkets in the city such as Ipoh and Penang as it

sells less variety of products’ brand where customers have less choices for the products.

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Part 5

5.1 Usefulness of Assignment

In conclusion, this Microeconomics and Macroeconomics assignment is very useful

and significant to us. At first, our leader had fairly distributed all the duties among us and

every one of us worked very hard on every part. Meanwhile, we also learnt about the

importance of responsibility. All of us were very responsible to complete our own parts and

hand in to our leader on time. We had also developed the spirit of teamwork by learning how

to work as a team and cooperating with each other. This is because we knew that teamwork is

essential in completing an assignment. For example, we gathered and made discussion

together to exchange our opinion among each others. We usually solved problems

cooperatively by gathering all the opinion of group members.

Furthermore, we have learnt how to differentiate the prices of the product through the

survey of Johnson’s baby lotion 500ml (Mildness). We went to 10 different places and made

the comparison of the prices among these shops. We had used several methods such as the

Internet, newspaper and catalogues of hypermarkets to get the information of the Johnson’s

baby lotion 500ml (Mildness) while the price data collection is collected from hypermarkets,

supermarkets, pharmacy, Chinese medicine shop and mini market.

After knowing the theories of Microeconomics and Macroeconomics, we are able to

apply some of them into our real life. This may also help to enhance our understanding of

what we have learnt. Theories that we have learnt through this assignment are the relationship

between normal and inferior goods, monopolistic market, law of demand, elasticity, and short

run and long run equilibrium.

5.2 Income Effect

Johnson’s baby lotion 500ml (Mildness) is a normal good. In economy circumstances,

normal goods are the goods where demand of consumers increases when their income

increases. The income can be defined as the real income of an individual or economy.

However, this theory is not applicable in the quantity demanded of Johnson’s baby lotion

500ml (Mildness). This is because Old town in Kampar, Perak is mainly comprised of senior

citizens who are mostly retirees and they may only have fix income from their EPF where

they do not have increased or decreased in income. However, this does not mean that they

will not purchase Johnson’s baby lotion 500ml (Mildness) as their income does not increase.

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They will still have to buy it if they need it for their children regardless with their increase or

decrease of their income.

In new town of Kampar, Perak, students are the main residents in this area where

most of them will not have income as they are not included in labor force as being full time

students. However, they will purchase Johnson’s baby lotion 500ml (Mildness) with the

pocket money that are given by their parents regardless neither the income of them nor their

parents. This is because it may be a necessity for them to use lotion to moisturize their skin as

students in this area are exposed to the sun which will damage their skin when they are

cycling or walking to campus.

5.3 Elasticity

From our analysis, the demand curve of Johnson’s Baby Lotion 500ml (mildness) is

elastic as the percentage change in quantity demanded for the product is more than the

percentage change in price of it. According to the theory of elasticity, the sellers or the stores

should lower the selling price of Johnson’s Baby Lotion 500ml (mildness) in order to

increase their total revenues for elastic demand curve due to the consumers are sensitive to

the price change.

However, this theory is not really applicable in our analysis. In real life, consumers

will consider the psychology of prices and not only simply the economics. Consumer will

usually perceive higher-priced product as having higher quality. Therefore, even though the

price of Johnson’s Baby Lotion 500ml (mildness) is as high as Pasar Mini Tenaga Cergas in

New Town, Kampar in Perak which is sold at RM17.90, consumers will continue to purchase

it though its price is higher than lotion of other brands. This shows that consumers are not

sensitive to the price change of Johnson’s Baby Lotion 500ml (mildness).

Moreover, the Clinically Proven Mild formula of Johnson’s Baby Lotion 500ml

(mildness) has unique characteristics where only high quality ingredients proven safety

tolerance profile are selected and has tested for good skin tolerability. This characteristic has

protected the sale of Johnson’s Baby Lotion 500ml (mildness) from dropping even it is sold

at a high price as a brand loyalty has been built among the consumers.

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5.4 Determinants of Demand-Expectation

Based on the theory of demand, the expectation of consumers on Johnson’s Baby

Lotion 500ml (Mildness) is one of the determinants that affected the demand of the product.

As Pasar Mini Tenaga Cergas is located at the new town of Kampar in Perak which is a rural

area and it only operates as a mini market, it will not make any advertising or distribute any

flyers and catalogues for their products included Johnson’s Baby Lotion 500ml (Mildness).

Thus, consumers like students from KTAR and UTAR will not be able to expect the price of

the product in the near future. Therefore, expectations will not affect the demand of

consumers for Johnson’s Baby Lotion 500ml (Mildness). In theory, it can be explained that

the demand will increase if consumers expect the future price of the baby lotion to fall soon

and vice versa. However, this theory is not applicable in the real life as consumers of Pasar

Mini Tenaga Cergas cannot expect the price to be fall or rise in the future.

5.5 Types of Market

Based on our research, Johnson & Johnson is categorised as monopolistically

competitive firm and it will differentiate it products. This characteristic of monopolistic

competition company is clearly shown in our analysis on Johnson & Johnson because

Johnson & Johnson is very aggressive in advertising its products for the purpose to create

brand customers awareness and differentiate its products.

From the financial annual report 2010, Johnson & Johnson spent a lot on advertising

expenses, which are comprised of television, radio, print media and Internet advertising. They

spent $2.9 billion, $2.4 billion and $2.5 billion in 2008, 2009 and 2010 respectively. Most of

the customers buy Johnson & Johnson’s baby lotion due to the effort of Johnson & Johnson

in advertising. Customers can get to know the company has come out with various functions

of lotion to fulfil all the needs in different segments of consumers in the market. For example,

there are baby lotion with aloe vera and vitamin E, milk lotion and bedtime lotion which

available in the current market.

This shows that monopolistic competition firms are depending much on

differentiating their product in order to earn profit. This characteristic of monopolistic

competition firm is actually applicable in our real life.

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5.6 Short Run and Long Run Equilibrium

According to theory, monopolistic competitive firms can only make zero economic

profit, earning a normal return on the use of their capital in long run equilibrium. However,

this is not applicable in our analysis on Johnson &Johnson’s financial position. From the

financial annual report of Johnson &Johnson, it has earned economic profit for consecutive 6

years. The figures are shown in the table below:

Year Average revenue ($) Average Total Cost ($) Net Earnings ($)

2005 61,095 51,035 10,060

2006 53,324 42,271 11,053

2007 50,514 39,938 10,576

2008 45,236 32,287 12,949

2009 43.450 31,184 12,266

2010 42,795 29,461 13,334

The statistics above shows that Johnson & Johnson earn economic profit but not

normal profit in long run. The products of Johnson & Johnson can be still sold above the

average total cost, where P>ATC.

The main factor that may cause the demand curve to shift leftwards as a result of drop

in sales of Johnson & Johnson is the entry of competitors into the market. As the demand

curve shift more and more to left, the ATC will eventually same as P until the operation of

company change from economic profit to zero economic profit.

However, in the presence of competitors such as Pureen and Nivea, Johnson Baby

Lotion of Johnson & Johnson can still earn profit without losing all of its customers due to

its brand loyalty in long run. The strong brand of itself can protect the sale from dropping as

a brand loyalty among customers has been built. Johnson & Johnson has incredible brand

loyalty from its customers as the lotions that are manufactured are superior and reliable as

well as their community involvement such as Johnson & Johnson Internship Virtual Career

Event in November 2011. Once the customers of Johnson & Johnson have more money to

spend, they will come back to the same brand they like and familiar with. This has ensured

the sales of Johnson’s baby lotion to keep on operating in economic profit instead of zero

economic profit.

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