CENTRE FOR FOUNDATION STUDIES

FHBM1024
MICROECONOMIC & MACROECONOMICS

SEMESTER 201410

Tutor: Ms. Tsen Tzu Yee

Prepared by

Tutorial
No ID No. Name Signature
Group
14AHF01511 Ng Rui Ying T37
1
14AHF04203 Tan Yuen Qin T37
2
14AHF03181 Tey Yin Wei T37
3

4 14AHF03324 Michell Lee Kar Kei T37

Date of submission: 10th November 2014

FHBM1024 MICROECONOMICS AND MACROECONOMICS 1

CONTENT

Particular Page
Part 1: 3-7
- Introduction company
- Introduction product / service brand line
- Normal Product
- Complement and substitute
- Market Structure
Part 2: 8-9
- Comparison price of the product
- Reasons of the price level for both products
Part 3: 10 13
- Law of demand
- Elasticity
- Advantages of market structures belong to
- Fixed and variable cost
- Economics of scale

References 14
Appendix 15-17

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Part 1
Introduction company

The Yakult cultured milk drink in Malaysia is proudly Malaysian made, from
the finest selected ingredients. Although Yakult has enjoyed 70 years of successfully
promoting better health overseas, it is a new product to Malaysia.Yakult (Malaysia)
Sdn. Bhd. commenced production in February 2004 and is awholly owned subsidiary
of Yakult Honsha (Japan). Yakult has committed millions of ringgit to establish and
operate its Malaysian manufacturing operations in Seremban, Negeri Sembilan and
head office in ShahAlam, respectively. The product that is marketed in Malaysia is
Yakult Ace, an improved version of the standard Yakult cultured milk drink available
in other countries worldwide. Yakult Ace has a higher concentration of the probiotics
Lactobacillus casei Shirota and added nutrients: calcium, niacin and vitaminsB6, B12
and D. Yakult (M) Sdn. Bhd. currently employs over 88 people through out Malaysia.
Our employees include production workers, sales consultants, customer service officers,
administrative staff, managers and human resource personnel.

The man behind the founding of Yakult Honsha Co., Ltd was Dr.Minoru Shirota.
He began developing Yakult in 1930 while he was with the Microbiology Department
at Kyoto Imperial University's School of Medicine.Dr. Shirota believed that rather than
curing a disease, it was much better to builda strong body that was able to resist the
disease. He turned his attention to the study of micro organisms due to his strong belief
that a type of bacteria-lacticacid bacteria is capable of contributing to our health. Dr
Shirota's objective was to isolate a beneficial bacterium that would be able to survive
through our stomach and bile acids to arrive alive in our intestines. There it would assist
the functioning of our digestive system. Subsequently, he discovered that lactobacilli
could also destroy harmful bacteria that live in our intestines.Excited by this finding,
he conducted an exhaustive investigation of lactobacilli,where upon he discovered a

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new strain of bacteria. Early Yakult bottle This strain of bacteria - Lactobacillus casei,
was found to be the most acid and bile resistant and was subsequently named
Lactobacillus casei Shirota strain inhonor of Dr Shirota's research. It was the discovery
of this bacterium that led tothe birth of Yakult. In 1935, Dr. Shirota started distributing
Yakult from his clinic. For the next 20 years, Yakult was produced and marketed all
over Japan by a number of independent operators. Finally, in 1955, Dr Shirota founded
his own company, Yakult Honsha Co. Ltd., consolidating his business by taking control
of all the operations. His business plan had an over riding business objective: to promote
health and bring happiness. Today, Yakult is available in 28 countries and is consumed
by more than 20 million people every day worldwide.

The Yakult that we drink in Malaysia is produced from high quality,carefully

selected ingredients and packaged in our modern state-of-the-art factory in Seremban,
Negeri Sembilan. The bacteria come from the mother culture in Japan. The local plant
maintains the highest quality standards throughout the process, equivalent to the Yakult
manufacturing plants in Japan.

Introduction - Yakult
Yakult is a world pioneer in the field of probiotics which had over 75 years of
research experience. Born from the researcher of doctor call Dr. Minoru Shirota, who
was first person in the world succeed in bring up a "Lactobacillus casei Shirota",
popularly known as the "Shirota strain" bacterium were useful for maintaining human
health in Japan year 1930. With over 30 billion live Shirota strain in each bottle, Yakult
has become the highest concentrations of probiotics compared to other probiotic
products which was mostly just contain 1 to 10 billion live probiotic bacteria per serving
on the market when Yakult started to enter the market in year 1935.

Yakult is a high quality probiotics in the form of a cultured milk drink for getting
a good health to human because it is free of preservatives, stabilizers and colourless.
Yakult is a right choice for those who are looking for the high quality probiotics for
benefit for human health because of strongest bacteria.

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 Yakult has their own popular brand name which is admitted by the Japanese
Ministry of Health as a "Food for Specified Health Usages" and also approved by health
claim that "The Lactobacillus casei Shirota strain reaches the intestine alive, so this
product maintains good health by increasing the beneficial bacteria, decreasing harmful
bacteria and improving the intestinal environment." For the Yakult taste, there have
Yakult Ace and Yakult Ace Light.

For the Yakult original taste, Yakult Ace is a premium version of the standard
Yakult cultured milk drink available in other countries worldwide. Yakult Ace also has
a higher concentration of the beneficial bacteria Lactobacillus casei Shirota and
contains added nutrients which is calcium, niacin and vitamins B6, B12 and D. For the
latest product of Yakult which is Yakult Ace Light also is cultures milk drink and has
a same high concentration of the Shirota strain as Yakult Ace, which is 30 billion live
probiotic bacteria in each bottle, but it is with 50 percent less sugar compared to the
original Yakult Ace. Both for the Yakult product is also free of fat, cholesterol,
colourings, perservatives, conditioners and stabilizers.

Yakult also is a convenience product because it can get it at all major shopping
center, hypermarkets and stores in everywhere. Beside of the Yakult can get it anywhere
easily, Yakult has also home delivery service by Yakult Ladies to promote to the
customer. This service was free of charge, but it only available in certain areas.

Last, Yakult is a beverages foster in a healthy lifestyle. There is a high quality

ingredients go into the creation of functional food products for the health-conscious. In
addition, Yakult are created using biotechnology and Yakult pharmaceuticals bring the
significant contribution to the science of curative medicine in nowadays.

Normal product
Yakult is a normal product. Normal products are goods which quantity
demanded increases when income increases. When income decreases, quantity
demanded for Yakult decreases. It has a positive relationship in elasticity of demand.

FHBM1024 MICROECONOMICS AND MACROECONOMICS 5

Substitute
Yakult and Vitagen are made by fermenting skim milk. Vitagen can be
substituted by the Yakult. Yakult aims to replicate Vitagens success in dairy product
at a time when a state crackdown on supplements diet with billions of good bacteria
among public is creating demand for dairy product. The price of Yakult is cheaper
than Vitagen. It will cause the demand curve of Yakult will shift to right because
consumers will buy Yakult than Vitagen. Yakult has the similar needs and probiotics
with Vitagen. The price of Vitagen increase, the quantity demanded of Vitagen will
fall as some consumers switch out of Vitagen into Yakult, which can substitute for
Vitagen. In addition, price increase in Vitagen will reduce the quantity demanded of
Vitagen because it reduces a buyers purchasing power. As a conclusion, buyers or
consumers will buy Yakult rather than Vitagen because Yakult has a lower price.

Price of Vitagen Price of Yakult

B
P2
P1 A
D1 D2
Q2 Q1 Quantity Quantity

Market Structure
Yakult is practising the market structure of monopolistic competition. Based
on the characteristics of monopolistic competition market, Yakult has product
differentiation. For example, Yakult has different style and packaging in market so
that consumer can easily distinguish Yakult products from others.

Moreover, Yakult has also many sellers and buyers in the market. For
example, Yakult has the competitors as Vitagen, Nutrigen, Solivite and others. Yakult
cultured milk are also available and suitable for everyone, such as kids, teenagers, adults
and old folks. It sells in several of markets, such as hypermarket, minimarket,
supermarket, shopping complex, and others.

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 Yakult can easily entry and exit the market. For example, Yakult can shut
down its business anytime and anywhere, but it is impossible for such a strong and good
reputation company.

Yakult can also be considered as a price maker because it can freely fix the
prices of its product in order to get more profit. It sets the same price for every market
and the prices of its products are not set by government.

Lastly, Yakult has also spent much money in advertisement to convince

consumer to purchase their product. For example, Yakult promotes their products by
using mass media, printed media, even giving discounts and free gift to its customers
in order to attract customers to buy its products and gain the profits.

FHBM1024 MICROECONOMICS AND MACROECONOMICS 7

Part 2
Comparison Price of the Product
Product taste Price of Yakult Price of Vitagen

Original RM 4.29 RM 4.50

Less Sugar RM 4.65 RM 4.69

From the table as above, we can see that price of Yakult with the original taste,
Yakult Ace is RM 4.29 and the less sugar taste, Yakult Ace Light is RM4.65. From
the above has also shown the price of Vitagen with the original taste, many flavor is
RM 4.50 and also the less sugar is RM 4.69. To make the comparison with this both
of product, although price of Vitagen with the original taste was higher than price of
Yakult with the original taste, but the different of price was just more than RM 0.21.
Besides of that, taste of less sugar between the price of Vitagen and price of Yakult,
price of Vitagen was also higher than price of Yakult which is just different RM 0.04
only. In the comparison of the price at RM 0.21 and RM 0.04, we can say that,
compare the price of Yakult and price of Vitagen is almost the same because they are
selling the same cultured milk drinks.

Reasons of the Price Level for Both Products

i. Technology
The probiotic bacteria "Lactobacillus casei Shirota" (popularly known as the "Shirota
strain") is a breakthrough technology of Yakult. In conjunction with the formulation,
Yakult become a high quality probiotics in the form of a cultured milk drink. Yakult
has grown to become a world leader in probiotics. With over 30 billion live Shirota
strain in each bottle, Yakult has among the highest concentrations of probiotics
compared to other probiotic products on the market (most probiotic drinks and
supplements claim to contain at most 1 to 10 billion live probiotic bacteria per serving
or per capsule). Yakult has spread around the world, and is loved by 30 million people
from 33 countries and regions so that it lower its price to let everyone affort to buy it.

FHBM1024 MICROECONOMICS AND MACROECONOMICS 8

 ii. Corporate Philosophy
Yakult can be sold in a lower price is due to the corporate philosophy of Yakult
(Malaysia) Sdn Bhd. Yakult contributes to the health and happiness of people around
the world through the pursuit of excellence in life science in general and our research
and experience in microorganisms in particular. Yakult strives to continuously improve
the quality of health of Malaysian consumers by offering their products of innovative
concepts at more affordable prices. In contrast, the introduction of vitagen also helped
to educate the Malaysian public about the benefits of cultured milk drinks for a healthy
digestive system. Instead of setting a lower price to attract customers, their goal is more
to help people feel good to their products.

iii. Advertisement
Vitagen can sell in a higher price than Yakult because Vitagen spend too much on ads
causing the high cost price that leads to the higher selling price. There are a lot of
advertisement promoting Vitagen, we can reach in our daily life, such as television ads
and newspapers. In this case, the selling and advertisement cost consequently become
higher, causing the higher selling price. On the contrary, Yakult has been gaining a
strong brand image and product quality for years. They actually spend lesser in
advertisement cost, as we seldom see Yakult be advertised in televisions and periodicals.
Therefore, Yakult can be sold in lower price.

FHBM1024 MICROECONOMICS AND MACROECONOMICS 9

Part 3
Law of Demand
According to our study,we know that the definition of law of demand is when
the price of a good rises,the quantity demanded of the good falls,and when the price
falls,the quantity demanded rises.This is because the price related to the substitutes
goods.For instance,the price of Yakult increases,the consumer will change to purchase
on Vitagen rather than Yakult according to the economy study or theory. However, this
scenario will exactly different with the theory said in our real life.Although the price of
the Yakult rise will also not effect the demand of this product ,and consumer still
continues to consume the Yakult. This is because the taste or the habit of the consumer
any they still purchase all the goods based on their taste. So,the price of goods will no
influence the consumers.

Elasticity
In concept of Elasticity, goods with a availability of close substitutes are have
elastic demand. For our product, Yakult is an elastic product. This is because Yakult
has a close substitution and has a powerful opponent like Vitagen. This will cause easier
for the consumers to switch from one good to the other brand of good. For example, if
the price of Yakult was change to higher price than a close substitutes price of Vitagen,
consumer will willing to buy the Vitagen rather than buy the Yakult because Vitagen
was in lower price than Yakult.
Furthermore, goods that are luxuries which is usually have more elastic demand
than goods that are necessities. So, Yakult is a goods that are luxuries product, this is
because Yakult is not a necessary product for all the consumers demand. For example,
milk is a necessities product because it is inelastic demand and consumers will not so
dependent about the price of milk. But for the Yakult, Yakult is a luxuries product
because of it is elastic demand and consumers will very sensitives about the price of
Yakult.
Besides, demand tends have to be inelastic which is less sensitives about the
price in the short run than in the long run which to be elastic and sensitives about the
price. For the reason, short run may cause the consumers difficult to find out the
available substitutes when the product is in the price change. But for the long run, it
have enough time to let the consumers find out the available substitutes and can also

FHBM1024 MICROECONOMICS AND MACROECONOMICS 10

adjust their behaviour about the products. For instance, Yakult is an elastic product and
it belongs to the long run. Assume that price of Yakult is sudden increase, consumers
will reduce the purchasing power in Yakult product and change the behaviour to the
Vitagen product because consumers have enough time to choose or find the other close
substitutes of Yakult.

Advantages of market structures belong to

i) Price maker
The firms that operates under the monopolistic competition have freedom and
rights in adjusting the price of products and services. In this market, the firms have their
own loyal customers buying their products. Moreover, the products that are produced
similar in pattern and almost the substitute products. So, if the firms increase the price
of products, not all of the customers will change their taste or preferences to other
substitute products that are cheaper. For example, Yakult increase the price of their
cultured milk slightly that will not impact the customer switch to another brand of
substitute product. This is because the customers have been used to this brand and the
price of product is not increase too much.
ii) Differentiated
The firms that operates under the monopolistic competition had to differentiate the
product from their competitors. The differences in the product will be easier for the
customers to choose a product from the specific company. Each company uses their
own way to promote their product to customer such as the size, price and the colour of
packaging. The company must come out different and specific features to attract
customer and make it easier to recognize for customer. For instance, Yakult use
different colour of packaging to classified their cultured milk such as red and blue. Each
of these has different favor.

iii) Easy market entry and exit

The firms that under the monopolistic competition is more easily to entry and exit
compare to others. The number of firms in the market will increase until the economic
profits are driven to zero. In this competition, there are not many barriers to entry such
as legal barriers, franchising, licensing and patents. For example, Yakult have been

FHBM1024 MICROECONOMICS AND MACROECONOMICS 11

utilized all the resource that need for production and earned maximize profit in the
market.

Fixed and variable cost

In the short-run production, a company can produce and various its quantity of
inputs to maximize its profit in a period of time frame. Fixed cost cannot be changed in
the short-run, but variable cost is possible to change to maximize the profit. Yakult can
change their variable cost, which are raw materials (1382.2 millions), packaging (836
millions), electricity bill (730.5 millions), and labour (1056.3 millions) directly
involved in a company's manufacturing process in the short-run. To adjust to any
changes in economics of the world such as when economy is bad, Yakult is able to
change its variable cost. For example, less people will purchase Yakults cultured milk
when the economy is bad. This causes the quantity supplied of Yakults cultured milk
decreases. This means that less labour and energy is needed, so the company can make
necessary arrangements about the staff. The fixed cost consist of depreciation (192.6
millions), rental (903.5 millions), salaries (825.3 millions) and insurance (34.9 millions).
The amount of raw materials that they need to buy will also be reduced as their
production is decrease. Yakult produce 8.4 millions Yakults cultured milk everyday
and sales of 2.2 millions in the world. A bottle of Yakult contains water, sugar, skim
milk powder, glucose, natural flavors, and Lactobacillus casei Shirota. A regular
variant of Yakult has 50 calories per bottle, while the 'Light' version is sweetened with
Reb-A (stevia) has 30 calories per bottle. If the quantity demanded has dropped, the
quantity supplied should be reduced as well to safe on raw materials. There will be the
deadweight loss, if the quantity demanded is less than the quantity supplied. If the
economy is good, they will increase their quantity supplied because the quantity
demanded of Yakults cultured milk increase. They can hire more labour and buy more
raw materials to support the higher level of production.
In the long-run production, Yakult can change the fixed costs to adapt to the
economy situation. The company can plan extend their business if the economy is good
and expected to be good for a long-run. It cannot be done in the short-run because things
are unpredictable and will lead to a loss to the company. Long-run supply is just
somewhat elastic.

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Economies of scale
In microeconomics, economies of scale is the cost advantages that a business
gains by expanding the scale of production in long run. The more output that produced
by a company, the lower cost per unit. This is a competitive advantage of the company.
Due to Yakult has the greatest volume of producing cultured milk, it has the largest
advantage as a result of its economies of scale. Yakult can maximise the amount of
cultured milk to increase the economies of scale and lower the average cost per unit.
Moreover, the research and development that undertaken by the company is essentially
free because of the large amount of production. Another reason that the company
experience the economies of scale is efficiency of capital. If Yakult produce a lot, it
needs to purchase a huge amount of raw materials from supplier, then it may obtain
discount, so Yakult can buy ingredients at lower prices, which reduces its cost of
production.

FHBM1024 MICROECONOMICS AND MACROECONOMICS 13

References
http://usahawan-yakult.blogspot.com/
http://www.yakult.com.my/
http://eshop.tesco.com.my/en-GB/Product/BrowseProducts?taxonomyId=Cat00002947
https://www.boundless.com/economics/textbooks/boundless-economics-
textbook/elasticity-and-its-implications-6/price-elasticity-of-demand-54/determinants-
of-price-elasticity-of-demand-211-12302/

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Appendix

Website of Yakult Malaysia

FHBM1024 MICROECONOMICS AND MACROECONOMICS 15

Tesco eshop

FHBM1024 MICROECONOMICS AND MACROECONOMICS 16

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