The losses incurred by this firm if it continues to operate in the short run are shown by the shaded area to the right. The size of this area is total cost - total revenue.

   On the other hand if the firm were to shut down in the short run it would still have to pay its fixed costs. Indeed, this is the definition of fixed costs. So, all that we need to do is compare the fixed costs with the short run operating losses.

Click Here if you don't see topics listed to the left and below.