LR Equilibrium in Monopolistic Competition

The picture above represents the long run equilibirum of a monopolistically competitive firm. The short run profits induce entry into the industy. The increased entry has two effects. The first is the business stealing effect. New companies, with new differentiated products, capture some of the market of the existing firms. At the same time, the existence of more substitutes due to entry, causes the demand curve for the individual firm to be more elastic (D to D' and MR to MR'). In the long run, the industry settles at a point where there are zero economic profits for all the firms (at q lower than the min of ATC).