Final answer:
In the long run, a monopolistically competitive industry that earns economic profits will experience the entry of new firms, which leads to economic profits falling to zero. Conversely, if firms face economic losses, there will be an exit of firms until economic profits return to zero.
Step-by-step explanation:
If a monopolistically competitive industry is earning economic profits in the short run, then according to market dynamics, it will experience the entry of new rival firms into the industry in the long run. This entry of new firms happens because these firms see the potential to earn profits and thus decide to enter the market. When new firms enter the market, they increase the availability of substitutes and competition, which typically leads to the original firms experiencing a decrease in demand for their products and a reduction in their economic profits. As a result, the industry’s economic profits diminish until they reach a normal profit level (zero economic profit).
Conversely, if firms within the industry are suffering economic losses, there would be an exit of firms out of the industry until the economic losses are mitigated and the surviving firms' economic profits return to zero in the long run. Therefore, in the long run, we expect the economic profits or losses to be eliminated due to the entry or exit of firms, respectively.