Final Project Part 1: Final Submission

The Microeconomics of Johnson & Johnson

MBA 502

Southern New Hampshire University

I. Overview

Johnson & Johnson started in New Jersey in 1887. Over the past 130 years, Johnson & Johnson has grown to have 230 operating companies conducting business in multiple countries all over the world. Johnson & Johnson consists of approximately 134,100 employees worldwide (Johnson & Johnson Reports 2017). Johnson & Johnson’s main products are in human health and well-being categories. As of October 2017, Johnson & Johnson’s annual sales consisted of $76.1 billion to $76.5 billion (Johnson & Johnson Reports 2017).

II. Supply, Demand, and Market Equilibrium

Price elasticity of supply or demand reacts to a change in price. If organic baby lotion is viewed as a necessity for consumers, consumers will continue to purchase this product despite an increase in price; therefore, the product is inelastic. However, if organic baby lotion is not considered a necessity for consumers, an increase in price will turn consumers away because the price will be viewed as expensive; therefore, the product is highly elastic. With this information, I believe organic body wash for babies is highly elastic. Although some consumers prefer to use all organic products always, it is not a necessity. If the price for organic baby lotion becomes too high, there are other products on the market for consumers that are not organic and affordable.

  1. Describe the price elasticity of supply or demand for your product or service.

Two non-price factors that impact the demand of organic baby lotion by Johnson and Johnson is consumers income and consumers taste and preferences. A consumer’s income plays a significant role, because it determines whether they can afford the product or not. When consumers have an increase in income, there will be an increase in demand for the product; however; a decrease in consumers income will cause a decrease in demand for the product. Another non-price factor that can impact the demand for organic baby lotion is consumers taste and preferences. Some consumers prefer to use an all organic baby lotion, while other consumers do not. Because of these tastes and preferences, there can be an increase or decrease in demand.

  1. Explain how two nonprice factors impact the demand of your chosen product or service.

Two non-price factors that impact the supply of organic baby lotion include the price of inputs and technology. Inputs, such as land, labor, and capital, are considered productions costs. If there is an increase in production costs, there will be a decrease in supply of the product. On the other hand, if there is a decrease in production costs, there will be an increase in supply of the product. Technology is constantly advancing in today’s world and can have an impact on the supply. If technology brings a more efficient way of producing organic baby lotion, while using the same amount of resources and production costs, the supply of the product can increase.

  1. Explain how two nonprice factors impact the supply of your chosen product or service.

The market for organic products has continued to grow, as consumers are realizing the harsh chemicals that are in everyday products. There are many other competitors with affordable organic products. Johnson and Johnson is a reputable company when it comes to their products, and consumers continue to purchase their products, despite them not being organic. Introducing an all organic baby lotion will gain interest of the public. Gaining the public interest would help demand and supply meet the market equilibrium.

  1. Define the industry and market equilibrium associated with the product or service.

I believe consumers who are passionate about using organic body wash for their baby will continue to purchase the product, despite the price. When a line of organic body wash for babies is produced and put on the market, there needs to be enough supply to meet the demand of the product. If there is a not a high demand for the product overtime, this would cause a surplus in supply and the supply would also need to decrease. If there is an increase in demand in the product overtime, a shortage of supply can occur. In this case, there would need to be an increase in supply.

  1. Predict the effect of changes in supply and demand on the market equilibrium.

If there is a decrease in demand of organic baby lotion or the product is not performing well, a decision I would have to make is to decrease the output of the product. I would also have to determine the cause of the decrease in demand. For instance, if it is because the price of the product is too high, I would have to make the decision to decrease the price of the product. If there is an increase in demand, I would have to make the decision to increase the supply of the product.

  1. Describe the decisions related to supply and demand for the product or service that you would make based on the predicted changes in supply and demand on the market equilibrium.

III. Production and Costs

Three key inputs in the production of Johnson and Johnson organic baby lotion include materials used to make the product, labor used, and capital. Fixed costs involved in the production of organic baby lotion is the operation costs of the warehouses where the product is made, such as electricity, as well as rent for the land. Variable costs involved in the production of organic baby lotion include payroll for employees and the cost of materials.

    1. Describe three key inputs (or factors of production) and fixed and variable costs involved in the production of your chosen product.

Factors that would impact my choice of inputs used to produce Johnson and Johnson’s organic baby lotion is where the materials are purchased and from which outside sources. If materials are not coming as needed, it can cause a delay in the production process; therefore, it is important to get materials from reliable outside sources. The cost of machinery can also affect inputs. If machinery is too costly, more labor will have to be implemented.

      1. Analyze the factors that impact your choice of inputs to produce the chosen product or service.

To have an efficient means of production, a decision that I would have to make is where to have warehouses, where the product would be produced and distributed. Warehouses must be in a location where materials can be delivered in a timely manner. I would also have to employee highly trained and motivated employees if machinery is costly, so the production can run smoothly and efficiently.

        1. Examine the production decision that you would make based on the analysis of the factors impacting the choice of inputs to produce the chosen product or service.

II. Production and Costs

Three key inputs in the production of Johnson and Johnson organic baby lotion include materials used to make the product, labor used, and capital. Fixed costs involved in the production of organic baby lotion is the operation costs of the warehouses where the product is made, such as electricity, as well as rent for the land. These are considered fixed costs because electricity and rent does not change with an increase or decrease in the amount of goods or services produced. Rather, these are costs that must be paid by Johnson and Johnson. Variable costs involved in the production of organic baby lotion include payroll for employees and the cost of materials. Payroll for employees and the cost of materials are considered variable costs, because they are expenses that are dependent on production output; therefore, they rise as production increases and fall as production decreases.

          1. Describe three key inputs (or factors of production) and fixed and variable costs involved in the production of your chosen product.

Factors that would impact my choice of inputs used to produce Johnson and Johnson’s organic baby lotion is where the materials are purchased and from which outside sources. If materials are not coming as needed, it can cause a delay in the production process; therefore, it is important to get materials from reliable outside sources. The cost of machinery can also affect inputs. If machinery is too costly, more labor will have to be implemented.

            1. Analyze the factors that impact your choice of inputs to produce the chosen product or service.

To have an efficient means of production, a decision that I would have to make is where to have warehouses, where the product would be produced and distributed. Warehouses must be in a location where materials can be delivered in a timely manner. I would also have to employee highly trained and motivated employees if machinery is costly, so the production can run smoothly and efficiently.

              1. Examine the production decision that you would make based on the analysis of the factors impacting the choice of inputs to produce the chosen product or service.

IV. Market Structure

The market structure in which Johnson & Johnson operates is monopolistically competitive. In monopolistic competition, firms have goods and service that are that are similar; however, there is a slight difference in substitutes. For example, Johnson & Johnson and The Honest Company both have baby lotion products. The slight difference in this substitute would be that it is all natural and organic, whereas Johnson & Johnson currently does not have an all natural and organic product on the market. Johnson & Johnson is also monopolistically competitive, because there are many firms competing in the same market.

                1. Determine whether the market structure of the industry in which your chosen company operates is perfectly competitive, monopolistically competitive, or monopolistic. Justify your response.

Monopolistically competition impacts Johnson & Johnson’s financial performance because there is allocative inefficiency in both the long and short run of monopolistically competition (Monopolistic Competition, n.d.). This is because price is above marginal cost in both cases. In the long run the firm is less allocatively inefficient, but still inefficient (Monopolistic Competition, n.d.).

                  1. Assess how the type of market structure impacts your chosen company’s financial performance as measured by performance variables over the past three years. Support your response with data and graphs illustrating two performance variables of your choosing over time.

In a monopolistically market structure, there is freedom for firms to enter or leave the market. As more firms are producing products that are like Johnson & Johnson’s, consumers have a more options to choose from. As a result, this change can cause a decrease in demand for Johnson & Johnson’s organic baby lotion and the demand curve will shift to the left. This possible change can impact Johnson & Johnson’s business strategy in the future to release better products than their competitors. Changes in market structure require Johnson & Johnson to be ahead of their competitors, when it comes to the invention of their products. This will allow them to differentiate their products.

                    1. How would possible changes in the industry’s market structure impact your chosen company’s business strategy in the future? Keep your company’s current business strategy in mind in your response.

References

Johnson & Johnson Reports 2017 Third-Quarter Results | Johnson & Johnson. (n.d.). Retrieved January 14, 2018, from https://www.jnj.com/media-center/press-releases/johnson-johnson-reports-2017-third-quarter-results

Monopolistic Competition. (n.d.). Retrieved January 14, 2018, from http://economicsonline.co.uk/Business_economics/Monopolistic_competition.html

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