Represents the production point at which a firm is indifferent between shutting down and continuing to operate in the market. The optimal production decision of the firm at this point will all depend on the position of the individual firm's cost curves. This is because if the firm can acquire sufficient revenue at this point to at least meet their average variable costs, the firm would decide to stay in the market as any additional revenue over the variable costs can be used to cover part of the fixed costs of production. This runs on the assumption that when firms exit an industry the fixed costs must still be incurred.
If the firm produces below the shutdown point it will always cease production because the firm will not acquire enough revenue in order to cover the variable costs of production.