Final answer:
In the long run, a monopolistically competitive firm's profit-maximizing price tends to decrease due to increased competition leading to zero economic profits at equilibrium.
Step-by-step explanation:
In the long run
, the price charged by a
monopolistically competitive firm
attempting to maximize profits tends to
decrease
. This occurs because as the firm earns positive economic profits, other firms enter the market, increasing competition. This increased competition
decreases the demand
for the original firm's product, leading to a
decrease in both the profit-maximizing price and the profit-maximizing level of output
. Eventually, this process leads to a
long-run equilibrium
where all firms in the market earn zero economic profits, thus unwinding the initial profit advantage the original firm may have had.