In the short run a firm must pay its fixed costs whether it shuts down or not. Therefore, if it does shut down, its losses are equal to the fixed cost area shown in the previous graph.

   If in the short run the firm can earn enough revenue to help offset its fixed costs, then its losses will be reduced if it operates. The shaded area on the graph to the right represents the amount by which the firm will reduce its losses by operating in the short run.

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