Final answer:
The decision to shut down temporarily is a short-run decision, contrasting with the long-run decision to exit an industry, which involves permanent cessation of business reflecting an unsustainable pattern of losses.
Step-by-step explanation:
The decision to shut down temporarily is a short-run decision, while the decision to exit an industry can be made only in the long-run. In economics, these concepts are critical in intertemporal decision making, which involves evaluating the viability and profitability of a business over different periods. In the short run, a firm may decide to shut down temporarily if its revenues do not cover its variable costs, even though it might still be incurring fixed costs.
This is often a response to losses or unfavorable market conditions that could be temporary. However, in the long run, a firm will consider exiting an industry altogether if it faces a sustained pattern of losses and no longer finds the business operation viable.
In intertemporal decision making, firms must weigh the costs and benefits of continuing operations or ceasing them entirely over an extended time frame. Exit decisions typically involve a permanent change and possibly liquidating all the firm's assets, indicating a belief that the business cannot be profitable in the future.
Meanwhile, temporary shutdowns are reversible and occur under the expectation that the business may still operate profitably once conditions improve.