A monopolistically competitive firm may have positive or negative profits in the short run but will have zero profits in the long run.

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In the long run, new firms can enter the market, increasing competition and driving down profits for existing firms. This process continues until firms in the industry earn zero economic profits, meaning they are covering their costs but not making any additional profit. However, in the short run, a monopolistically competitive firm may have positive profits if it is able to differentiate its product and charge a price above its average cost. It may also have negative profits if it is unable to cover its costs due to low demand or high costs.

A Monopolistically Competitive Firm May Have Positive or Negative Profits