When a monopolistically competitive firm is making zero economic profits, it is producing at the output level at which the average total cost curve is tangent to the demand curve faced by the firm.At this output:

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When a monopolistically competitive firm is making zero economic profits, it is producing at the point where the average total cost curve is tangent to the demand curve. At this point, the firm is maximizing profits and the condition that marginal revenue equals marginal cost must hold. This is because if the firm were to produce at a higher output, marginal cost would exceed marginal revenue and the firm would experience negative profits. Similarly, if the firm were to produce at a lower output, marginal revenue would exceed marginal cost and the firm would also experience negative profits. Therefore, the only output level where the firm can make zero economic profits is where marginal cost equals marginal revenue, and this corresponds to the point of tangency between the average total cost and demand curves.

When a Monopolistically Competitive Firm Is Making Zero Economic Profits