Answer: total revenue falls short of total variable costs.

In the short run, a firm will shut down production if total revenue (TR) is insufficient to cover total variable costs (TVC). This is because the firm's loss would be minimized by shutting down, as the loss would then equal the fixed costs. Sunk costs, being unavoidable, should not influence the decision to continue operations. Economic profit being zero is a long-run consideration, not a short-run shutdown criterion.

Author: LeetQuiz Editorial Team