Final answer:
In the long run, firms in a monopolistically competitive market will earn zero economic profits and set prices above the marginal costs. Market entry in response to profits leads to competition that drives down prices and profits until firms break even.
Step-by-step explanation:
In the long run, monopolistically competitive firms will earn zero economic profits and charge prices that are greater than marginal costs. Monopolistic competition, unlike a monopoly, has low barriers to entry, which means firms can enter the market if they observe that incumbent firms are making positive economic profits. In the short run, firms may earn economic profits or incur losses; however, as new firms enter the market due to these profits, the original firm's demand curve shifts to the left, leading to reduced prices and output.
These market adjustments continue until firms earn just enough to cover their costs, including a normal return on investment, which is considered zero economic profits in economic terms. This outcome occurs at the point where the average cost equals the demand curve, reflecting an equilibrium where the firm's price covers both variable and fixed costs, but does not provide extra profit. Therefore, in the long run, firms in a monopolistically competitive market charge a price that exceeds the marginal cost of production but do not earn economic profits.