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Business Proposal For Johnson And Johnson

1122 words - 5 pages

Business Proposal for Johnson and Johnson

ECOX/561
October 7, 2013
Karen Yancey

Business Proposal for Johnson and Johnson
Johnson and Johnson is a multinational medical devices, pharmaceutical, and consumer packaged goods company founded in 1886 by three brothers: Robert Wood Johnson, James Wood Johnson, and Edward Mead Johnson (Johnson and Johnson , 2013).
In this business proposal the focus will be on consumer packaged goods for Johnson and Johnson. A discussion of whether Johnson and Johnson is elastic or inelastic, and whether the company is a price taker or price setter. Also in the business proposal, a discussion of barriers to entry, how the ...view middle of the document...

For example, Johnson and Johnson, Procter and Gamble, and Geber Products are producers of consumer products and the three companies have identical cost curve. Johnson and Johnson may assume that by reducing prices on certain consumer products, the company will have control of a larger market share compared to the other two companies. If the other two companies decide to follow Johnson and Johnson decision to reduce prices the market share will be shared equally. If the other two companies decide not to follow Johnson and Johnson decision to reduce price and continue selling at the same price Johnson and Johnson will raise more profit than the other two companies.
Barriers to Entry
The level of difficulty involved in entering health care varies with the segment. The consumer packaged goods for Johnson and Johnson is difficult to enter because some of the products, such as Tylenol are covered by patents. Also the consumer packaged goods is dominated by three major companies such as Procter and Gamble, Novartis, and Gerber Products. The consumer packaged goods has brand names that make it difficult for small businesses to enter the market.
How does Johnson and Johnson maximize profits
Johnson and Johnson maximize its profit by finding the quantity of output where the marginal cost is equal to marginal revenue. The company’s way of maximizing profits is keeping price increases at a modest level and maintaining competitive profits margins that enhance processes to produce more efficient products, reducing operating costs, and improving productivity. According to McConnell, Bruce, and Flynn, when an oligopolistic company has a high demand and cost conditions, the company may collude to limit joint output and set a common price with competitors. The company will be acting like a pure monopolistic company by setting quantity to zero, and price also to zero. The output combination will maximize profit for Johnson and Johnson (McConnell & Brue, 2009). see graph below:

P
R MC
I
C
E

A Pₒ ●
N
D
ATC
C Aₒ ●
O
S Economic ● MR=MC
T Profit D

O MR
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Johnson and Johnson maximize profit by making sure that the company’s total revenue is not exceeding total costs. The company may maintain marginal cost by adding cost of producing one more unit of its consumer products outputs. It can also change total revenue or extra revenue by selling one consumer product unit of output. In the short run the company will maximize profit or...

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