In a scenario where a firm's market price falls below its average variable cost, what should the firm ideally decide to do in the short run?

When a firm's market price falls below its average variable cost, it means that the company is not making enough money to cover its variable costs, which are the costs that change with production levels, like labor and materials. In this situation, the firm should ideally decide to shut down production in the short run. Continuing to produce would mean that the firm is losing more money than if it stopped producing altogether. For example, if a factory's variable costs for making each unit are $10, but the market price is only $8, the factory loses $2 for every unit it produces. By shutting down, the firm can avoid these losses and only incur fixed costs, which it must pay regardless of production.