The diagram below represents the long run equilibrium of a firm in Perfect Competition - Leaving Cert Economics - Question 1 - 2009

On the diagram, label the quantity produced in equilibrium at point G as Q1.

Label the price at which the firm sells its output at point G as P1.

Identify and label the average cost of production at point G as C1.

1. Many buyers and sellers - Numerous participants in the market, preventing any single buyer or seller from influencing prices.
2. Homogeneous products - All firms produce identical or very similar products, leading consumers to purely base decisions on price.
3. Free entry and exit - Firms can freely enter or exit the market with no significant barriers, ensuring that industries can adapt quickly to changes.

1. Many buyers and sellers: This implies that no individual can set the market price; it is determined by overall supply and demand.
2. Homogeneous products: This ensures that consumers will always choose the lowest-priced option, which keeps prices competitive.
3. Free entry and exit: It allows firms to respond to market conditions without major hurdles, ensuring efficiency.

Close substitutes: These are goods that can replace each other, satisfying similar consumer needs. Consumers will switch between them based on price changes and preferences.

1. Butter - Margarine
2. Bus transport - Car transport
3. Compact discs (CDs) - iTunes

For consumers: The availability of close substitutes gives them a greater choice in products, enhancing their chances to find the best price and quality combinations, leading to increased welfare.

For producers: They may set competitive prices, which could lead to higher sales volumes. If a producer can differentiate their product slightly, they might capture a larger share of market demand.