Based on the research that we had done in 10 different places, we found out that the price of Gardenia white bread are standard. The price of Gardenia white bread all are selling at same price RM2. 30 because the Gardenia Bakery has no price discrimination. Price discrimination is sellers charge different price to different consumers for the same good or service when the cost of providing that good or service does not differ among customers. Besides that, Gardenia white bread is not separate selling to different classes.
No matter the consumer’s income are high or low, which are living in urban or rural area also can get the Gardenia white bread easily. It is because Gardenia white bread is under monopolistic competition market. There are many seller and buyer and easy market entry and exit. Moreover, the company Gardenia Bakery also spend money in advertisement to convince consumer or customer. As a price maker with some power of market control, Gardenia white bread reacts to demand conditions, especially the price elasticity of demand, when setting the price and corresponding to quantity produced.
The key is the price elasticity of demand. Gardenia white bread operates in a market control that allows it to manipulate and work on the demand curve. Meanwhile, buyers are sensitive to the price (more elastic demand curve), less responsive to price (less elastic demand curve), so the firm will control the price so that the consumer would not buy other brand’s white bread. The market price of a good is determined by both the supply and demand for it. Demand refers to how much (quantity) of a product or service is desired by buyers.
The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship. Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and quantity of a good or service supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand. Gardenia white bread is a normal good. Its demand is depend on people’s purchasing power.
Mean that people will buy more when their income increases, while they will buy less when their income decreases. The law of demand stated that when the price of the good increase, demand will decrease and vice versa. While, the supply of good will increase if and only if the price of the good increase according to the law of supply. Gardenia white bread is a substitute product too. Substitute goods are goods that can be used to satisfy the same needs, one in way or another. The buyer carries out an actual and conscious process of choice about them, which leads the buyer to prefer one to another.
It means that people will choose Gardenia white bread when its price is lower than other brand’s, while if its price is higher, people will purchase other brands. Gardenia white bread utilizes the profit maximization method by producing output level that equates at the marginal revenue and marginal cost. In the graph illustrated the price set is greater than both marginal cost and marginal revenue in the monopolistic competition. In other words, Gardenia white bread does not produce output that moving along its marginal cost curve. The marginal cost curve is not the supply curve for a monopolistic competitive firm.
