A monopolistic competitor does not earn profits in the long run unless it can successfully differentiate its product in the minds of its consumers.

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Monopolistic competition is characterized by a large number of firms producing differentiated products. Because of the competition, firms in monopolistic competition cannot charge a price higher than their competitors in the long run without losing customers. Therefore, they must differentiate their products through advertising, packaging, or special features to create a perceived difference in the minds of consumers. Without successful differentiation, the firm will eventually face competition with no ability to charge a price premium and thus, will not earn profits in the long run.

A Monopolistic Competitor Does Not Earn Profits in the Long