A local bakery is facing decreased consumer income, leading to a significant drop in sales. The owner evaluates whether to continue production of pastries that are currently sold at $2 each. The average variable cost of producing each pastry is $1.50. Given this situation, what should the bakery owner consider in deciding whether to continue production in the short run?

In deciding whether to continue producing pastries in the short run, the bakery owner should consider the relationship between the selling price and the variable costs. Currently, each pastry is sold for $2, and it costs $1. 50 to make one, which means the bakery earns a contribution margin of $0. 50 for each pastry sold. As long as the revenue from selling pastries covers the variable costs and contributes to fixed costs, it might be wise to keep producing them, even with lower sales due to decreased consumer income.