Final answer:
When additional firms enter a monopolistically competitive industry, existing firms' demand curves shift to the left and new profit-maximizing output and price levels are established.
Step-by-step explanation:
When additional firms enter a monopolistically competitive industry because existing firms are earning positive profits, it will affect the demand curves of the existing firms. Specifically, the perceived demand curve for the original firm will shift to the left, from Do to D₁, and the associated marginal revenue curve will shift from MRo to MR₁. This is because new competition leads to a decrease in demand for the original firm's product.
The new profit-maximizing output for the original firm will change to Q₁, as the intersection of the MR₁ and MC curve now occurs at point U. Additionally, the optimal price will also change to P₁, which is the price determined by moving vertically up from Q₁ on the new demand curve.