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Microeconomic Analysis Paper

Microeconomic Analysis Paper

 Johnathan Gulston

 SNHU MBA 502

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Microeconomic Analysis Paper

Overview

Johnson & Johnson is a United States based multinational company that has been dealing its business in pharmaceutical, medical devices, and few other consumer packaged goods. Company is headquartered in New Brunswick, New Jersey and was founded in 1886.  The consumer segments offering includes baby care products, which operates under different brand names such as Johnsons Adult and Lubriderm among others. The company distributes its medical products to the community through retail outlets, distributors and health care professionals in the society.  The company has full time employees close to 130,000. They have medical devices with OneTouch brand that include a number of institutional products, which consider the need of healthcare checkups means these are electronic meters and test strips, which designed to provide accurate blood glucose readings and there are few other software tools to transform this information into actionable Healthcare decisions. The company operates in the drugs manufacturing industry, which is a monopolistic competition market structure. Today, there are numerous pharmaceutical companies, which try to come up with medical drugs to cure and prevent the occurrences of different illnesses in the current health care industry.

Supply, Demand, and Market Equilibrium

Price Elasticity of Demand and Supply

OneTouch products are very useful in United States and there are number of customer who already like this product and has been continuously using in their medical test aspects because people often want to test their routine check-up without the interference of medical care and such devices found successful to give them the most accurate test results. The demand is continuously increasing after making its availability in international market and increasing the customer base means increased in demand elasticity and Company is capable enough to manage the supply. However, pricing is slight high because of increased demand, which don’t seem to be low as concerned with medical sophisticated need and people don’t want to go to physician for every single and small check that resulted it as good product brand. Hence, price elasticity has increased with consistent supply of this product brand.

Two Non-Price Factors

Impact the Demand

  • Increased number of medical concern in last decade and people are now become more concerned for their health and they don’t want to ignore their health on risk. Hence, preferring to support the regular checkups through such self-test devices.
  • Secondly, medical checkup always require large money as compare to self-test. Hence, it has increased the demand of the product. Additionally, Company’s brand and increased its demand.

Impact the Supply

  • Supply has increased due to increased demand and there is one prominent reason is technology that also has explored the supply determinants of medical devices.
  • Supply changed due to expansion of business as Company decided to explore products in international market in order to get a good coverage by their business prospective.

Market Equilibrium

This is difficult to predict in medical domain as continuously increasing in demand value but maintained market equilibrium could be seen when Company cover its product business across the world then can manage its supply as per the demand and can see the equilibrium point. However, if think about US market then can say, its market equilibrium by meeting the supply as per demand. 

Impact of Demand and Supply on Market Equilibrium and Decision

  • If demands will continuous increase then chances to increase in price because it’s one time investment and anyone can afford as compare to institutional medical care.
  • If supply will increase without having any change in demand would require reducing the price that will directly influence to company’s product profit.

Therefore, both conditions are difficult for either consumers or Company but could be manage through a market equilibrium means company should consider the market need and supply the product as much as they can make enough profits or they can decide profit percentage and make availability to consumers.

Production and Costs

Before the product, One TouchUltra Easy Blood Glucose Meter, can be produced and delivered to the market, various factors of production and variable and fixed costs would have to be incurred.

Factors of Production

These comprise all the resources and inputs that go into the manufacturing of the product. In this context, they would primarily fall into three categories namely entrepreneurship skills, labor (human capital), and equipment. Firstly are the entrepreneurship skills. These are considered vital for production because no production process would be complete without it(Gopinath, Helpman, &Rogoff, 2014). For example, the economic resources required for production can exist, but without entrepreneurial skills, then such resources cannot be transformed into consumer goods. Similarly, the idea of creating the product would not be completed if an entrepreneur was not there to take the required risks and perform various managerial functions such as the gathering of economic resources and their subsequent allocation and distribution.

Secondly is labor, sometimes referred to as human capital. No industrial process is fully automated. For this reason, people are involved whereby their efforts are employed in the transformation of raw materials into finished products(Gopinath, Helpman, &Rogoff, 2014). In the production of the One TouchUltra Easy Blood Glucose Meter, human capital is required in joining all the parts to produce a complete and fully functional product. Thirdly areequipment, also known as the production capital. In the manufacturing of One TouchUltra Easy Blood Glucose Meter, the production capital would mainly include machinery, technologies, and other aids. Without a doubt, equipment is essential because the production process cannot entirely depend on human capital.

Fixed and Variable Costs

The manufacturing process of One TouchUltra Easy Blood Glucose Meter would incur various variable and fixed costs. Firstly are the variable costs. By definition, variable costs are the expenses of a business that change from time to time in an unpredictable manner(Shepherd, 2015). In the production of One TouchUltra Easy Blood Glucose Meter, among the unavoidable variable costs would be costs incurred on direct materials, piece rate labor, packaging, production supplies, and billable staff wages among others.  Secondly are fixed costs. These are costs that remain unchanged regardless of the level of operations. These expenses can be predicted accurately (Shepherd, 2015). Examples of fixed costs that would be incurred in the production of One TouchUltra Easy Blood Glucose Meter include factory rent, salaries, insurance, utility costs, taxes, interest expenses, and depreciation among others.

Factors that Impact the Choice of Inputs

Production processes are complicated procedures requiring managers to make compound decisions on the choice of the inputs to be used. Various factors impact such decisions. Firstly is scarcity. Without a doubt, all factors of production are scarce, which means that there is a limited supply to meet limitless needs. In a free and open market, resources become expensive when they are limited in supply (Rasmussen, 2010). As such, when the means required for the production of One TouchUltra Easy Blood Glucose Meter are scarce, prices are likely to go up. Therefore, it is up to the manufacturer to see if there are alternative materials to be used so that there are no unnecessary shutdowns.

Secondly are opportunity costs. Because of scarcities of economic resources, the choice to use a resource means not using it in another way. The manufacturer would decide to devote some resources to making One TouchUltra Easy Blood Glucose Meterbecause of the belief that profit would arise if resources are used in the manufacturing process and not others(Shepherd, 2015). Finally is productivity, which is a measure of the amount of output produced by a given amount of inputs. The meaning of this is that if the production process of One TouchUltra Easy Blood Glucose Meter is to be efficient, then raw materials, human capital, and various mechanical aids are necessary.

Production Decisions

After an analysis of the factors of production and the variable and fixed costs, as well as the factors influencing the choices of the factors of production, it is recommended that the manufacturer make sound production decisions in the best interest of the production process. Firstly, the producer must strive to minimize the use of scarce resources in the production and maximize the productivity of the factors used in production. This would help in reducing costs as well as keeping the costs as low as possible (Rasmussen, 2010). Secondly, the manufacturer should aim at maximizing profits. Efforts must see that the product is produced at a cost lower than it would sell in the market. Eventually, the returns after selling the product would surpass the costs incurred in making the product, and the difference would mean a profit.

Market Structure

 Johnson and Johnson company operates within the monopolistically competitive market structure of the drug manufacturing industry, which have different firms which competes strongly for the customer base. The monopolistic competitive markets of the industry could be explained by the production and the sale of products, which are differentiated to expand the markets for its products and services within the industry (Varian & Repcheck, 2010). Johnson and Johnson health care products can be offered by other companies. However, the company ensures that the products are slightly differentiated to support the ability of the company to grow its revenues and earnings in the industry.

 The monopolistically competitive market structures have been able to influential in supporting the growth of the revenues. This is because the company is able to develop and deliver quality drugs to enhance expansion of the health care industry.  Both sales revenues and gross profit are influential performance variables, which are critical in supporting the progress and understanding of the financial performance. The sales revenues of the company have grown steadily from 2012 to 2014.  The total revenues of the company in 2012 were $67,224,000 to $74,331,000 in 2014. Similarly, the gross profit also increased from $45,566,000 in 2012 to $51,585,000 in 2014.

Fig.1:

 Revenues Trend in Johnson and Johnson Company from 2012 to 2014.

            Fig.2: Gross Profit Trend in Johnson and Johnson Company from 2012 to 2014.

 Potential changes in the market structure  could have significcant on the company’s business stratrgu in company.  the current buysienss strategy is to offer strategic optiins which expands the ability of the company to  growth its revenues as wlel as meeting the needs of the customers.  Any potential changes in the regulatory programs and procedures within the industry’s market structure could affect the company’s business strategy significantly.  Thus, it is important to understand the nature and implications of the chnahges for the company to allign the company’s strategy appropriately (Browning & Zupan, 2014). Some of the chnages in the regulatory programs includes the difficulties in the progress and supporting performance within the organisation. Legal and regulatory constraints could lower the expansion of the sales and profits eanred by the company. Therefore, the potential changes would affect the strategy of the company for future financial performance.

References

Browning, E. K., & Zupan, M. A. (2014). Microeconomics: Theory and Applications. New York, NY:  Wiley Global Education.

Gopinath, G., Helpman, E., &Rogoff, K. (2014).Handbook of international economics (Vol. 4).Philadelphia, PA: Elsevier.

Rasmussen, S. (2010). Production economics: The basic theory of production optimization. Berlin, Germany: Springer Science and Business Media.

Shepherd, R. W. (2015).Theory of cost and production functions. Princeton, NJ: Princeton University Press.

Varian, H. R., & Repcheck, J. (2010). Intermediate microeconomics: a modern approach (Vol. 6). New York, NY: WW Norton & Company.

 
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