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 The floss is originally made from leftover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. Johnsons 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

Johnsons Baby Lotion 500ml (Mildness) is a lotion that specially formulated to be a
gentle and soothing moisturizer on babys 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 Johnsons Baby Lotion 500ml (Mildness) leaves delicate skin of babies
feeling soft, smooth, and not greasy. Besides, this lotion is clinically proven mild,

1
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. Johnsons Baby Lotion 500ml
(mildness) has its substitute products which also known as its competitor. The substitute
products of Johnsons baby lotion are Nivea Body Lotion and Vaseline Body Lotion.
According to the law of demand, when the price of Johnsons Baby Lotion 500ml (mildness)
is lower than the other lotion products, consumer will buy more units of Johnsons Baby
Lotion. This is because the price of Johnsons Baby Lotion is relatively cheaper compared to
the other brands. If the substitute brands of Johnsons Baby Lotion 500ml (mildness) such as
Vaseline Body Lotion has a lower price, the demand for Johnsons Baby Lotion 500ml
mildness) will be affected as the demand of Vaseline Body Lotion is increasing will cause the
demand for Johnsons Baby Lotion 500ml (mildness) to decrease. When the price of
Johnsons Baby Lotion 500ml (mildness) increases, the demand for its substitute products

2
increase as well. In conclusion, Johnsons 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 Johnsons
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
Johnsons 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 Johnsons 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 Johnsons 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 products 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.

3
 Part 2
2.1 Johnsons Baby Lotion 500ml (Mildness)

NO SHOP NAME ADDRESS PRICE State

1 Sunshine Farlim 294, Jalan Thean Teik, Bandar Baru Air Itam, RM 16.80 Penang
11500 Pulau Pinang.
2 Kedai Ubat Yen Jalan Dato Lau Pak Kuan, Ipoh RM 15.60 Perak
Seng
3 D.E. Pharmacy Jalan Sultan Azlan Shah Utara, Ipoh Garden RM 16.60 Perak
South. 31400 Ipoh.
4 Jaya Jusco No. 2, Jln Teh Lean Swee off Jalan Sultan Azlan RM 16.80 Perak
Shah Utara 31400 Ipoh, Perak
5 Pasaraya Lit Onn No 100 & 102 (ground floor) Lebuh Turi Chi RM 13.50 Selangor
Sdn Bhd Liung, 41200 Klang, Selangor Darul Ehsan.
6 Pasar Mini Tenaga 2259, 2260 Jalan Batu Sinar 31900 Kampar, RM 17.90 Perak
Cergas Perak.
7 Pasaraya Target Lot 7348, Jalan Kranji, Kampar, Perak, 31900. RM 14.99 Perak
Sdn.Bhd
8 Tunas Manja (Air B-30-B38, Jalan Air Putih, 25300 Kuantan, RM 16.50 Pahang
Putih) Sdn Bhd Pahang.
9 Tesco Jalan Kampar, Jalan Kampar Perdana,Taman RM 15.90 Perak
Kampar Perdana, Perak.
10 Pasaraya Eng C-582, Jalan Dato Lim Hoe Lek, Kuantan, RM16.90 Pahang
Hong Sdn. Bhd. Pahang, 25200

4
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 Johnsons 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 Johnsons Baby Lotion 500ml (Mildness) is
RM 4.

5
RM20.00
RM18.00
RM16.00
RM14.00
RM12.00
RM10.00
RM8.00
RM6.00
RM4.00
RM2.00
RM0.00
PASARAYA KEDAI D.E JAYA JUSCO PASARAYA SUNSHINE PASAR TUNAS TESCO PASARAYA
TARGET UBAT YEN PHARMACY LIT ONN FARLIM MINI MANJA ENG HONG
SDN BHD SENG SDN BHD TENAGA (AIR PUTIH) SDN BHD
CERGAS SDN BHD

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
Johnsons 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 Johnsons 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
 RM18.50
RM18.00
RM17.50
RM17.00
RM16.50
RM16.00
RM15.50
RM15.00
RM14.50
RM14.00
Hypermarket Supermarket Pharmacy Chinese Mini Market
Medicine
Shop

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.

RM18.00
RM16.00
RM14.00
RM12.00
RM10.00
RM8.00
RM6.00
RM4.00
RM2.00
RM0.00
Penang Perak Selangor Pahang

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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 & Johnsons 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
Johnsons Baby Lotion 500ml (Mildness) falls, the quantity demanded increases. In old town
of Kampar, the price of Johnsons 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.

8
Number of Buyers
An increase in the number of buyers increases the demand for the Johnsons 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
Johnsons 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 Johnsons baby lotion is increases as well. This is because students
are one of the main consumers who use Johnsons baby lotion nowadays. Johnsons 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 Johnsons 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
Johnsons 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 Johnsons 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 Johnsons Baby Lotion
500ml (Mildness) to determine whether it is earning an

9
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 Johnsons 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 Johnsons 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 Johnsons baby
lotion, the quantity that the consumers are willing to purchase will have a large change. This
shows that the demand curve of Johnsons 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 Johnsons Baby Lotion 500ml (mildness) is

depending on the availability of close substitutes. Since Johnsons Baby Lotion 500ml has
many close substitution products such as Pureen, it is considered as elastic. The more
substitutes are available for Johnsons Baby Lotion, the more elastic the demand is. Since the
price of it is elastic, consumers are very sensitive to its price change. For example, consumers

10
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 Johnsons 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 Johnsons 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 Johnsons 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 Johnsons 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 Johnsons 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 Johnsons 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 Klangs 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.

11
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 Johnsons 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 Johnsons
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

Johnsons 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 Johnsons 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 Johnsons baby lotion 500ml (Mildness) as their income does not increase.

12
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 Johnsons 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 Johnsons 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 Johnsons 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 Johnsons 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 Johnsons Baby Lotion 500ml (mildness).

Moreover, the Clinically Proven Mild formula of Johnsons 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 Johnsons 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 Johnsons 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 Johnsons 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 Johnsons 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 & Johnsons 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.

14
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 &Johnsons 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 Johnsons baby lotion to keep on operating in economic profit instead of zero
economic profit.

15