In the long run, monopolistically competitive firms make normal profits because they are forced to operate at the minimum point on their average total cost curve.

Question

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Monopolistically competitive firms may earn economic profit in the short run due to differentiation of their product, but in the long run, due to the entry of new firms attracted by economic profits, the demand for their product becomes more elastic, causing the firm to only earn normal profits. The minimum point on the average total cost curve represents the point of production where the firm can minimize its costs, but it does not guarantee normal profits in the long run.

In the Long Run, Monopolistically Competitive Firms Make Normal Profits