Final answer:
New firms entering the market means Tony's Italian Ice will face increased competition, causing Tony's demand curve to shift to the left, decreasing the quantity demanded at a given price.
Step-by-step explanation:
If Tony's Italian Ice is a monopolistically competitive firm and earns a profit in the short run, the most likely outcome is c. New firms that sell Italian ice will enter the market and Tony's demand curve will shift to the left.
In a monopolistically competitive market, profits attracted by the original firm lead to new entrants in the market. The increased competition causes the quantity demanded at a given price for the original firm's product to decline. This is depicted by a leftward shift in Tony's perceived demand curve. As consequence, the associated marginal revenue curve also shifts to the left.
This shift results in a change in the profit-maximizing quantity produced by Tony's, which now occurs where the new marginal revenue intersects the marginal cost but at a lower quantity.
In the long run, these market dynamics lead to a situation where firms in a monopolistically competitive market will earn zero economic profits.