Final answer:
In the long run, the original monopolistic competitor will see a decrease in economic profits due to the entry of new firms, which leads to a decrease in its profit-maximizing price and output levels, ultimately resulting in zero economic profits.
Step-by-step explanation:
In monopolistic competition, firms can earn economic profits or incur losses in the short run. However, in the long run, the scenario changes as new firms enter the market and render the profits to zero due to increased competition. When these new firms capture the original firm's profit, the original firm's profit-maximizing price and output levels tend to decrease.
As the market becomes more competitive, the original firm may have to lower its price to maintain its customer base and its output levels might also decrease as a result of the reduced demand for its product, since customers now have more substitutes to choose from. Eventually, the firm will adjust to a point where it makes just enough profit to stay in business but no excess profit, also known as a normal profit or zero economic profit.
This differs from perfect competition, where firms produce at the lowest point on the average cost curve, achieving productive efficiency. In contrast, firms in monopolistic competition will not operate at the minimum of the average cost curve due to product differentiation and brand loyalty, which allows them to maintain some level of pricing power and not be productively efficient.