Final answer:
A firm's variable cost becomes zero when it produces no output, as variable costs are directly linked to production levels. Fixed costs, however, remain constant and still need to be covered even if production is halted.
Step-by-step explanation:
When considering a firm's costs, a firm's variable cost becomes zero when the firm produces no output. This is because variable costs are tied directly to the production level of goods or services - when production ceases, these costs do not incur. It is important to note that this does not affect fixed costs which are incurred regardless of the production level. Therefore, fixed costs would still be present even if a firm's variable costs drop to zero due to a lack of production.
The concept of the shutdown point represents a scenario where a firm may decide whether continuing to produce or shutting down is more economically viable when experiencing losses. When a firm produces a quantity of zero, it can reduce its variable costs to zero but still has to cover its fixed costs. In the short run, fixed costs are considered sunk costs and should not widely influence economic decisions regarding future production levels. However, this does not mean that variable costs can become zero by increasing production quantity, reducing fixed costs to zero, or when a firm's total cost is zero.