Final answer:
In the short run, fixed costs, which are considered sunk costs, should be disregarded when making decisions about continuing production since they cannot be altered and do not affect future operations. Instead, decisions should focus on variable costs and marginal returns.
Step-by-step explanation:
In the short run, fixed costs should be ignored when determining whether to continue production. When considering production decisions in the short term, a business must differentiate between variable costs and fixed costs. Fixed costs are categorized as sunk costs and are not relevant for future economic decisions as they have already been incurred and cannot be changed irrespective of the production levels. In contrast, variable costs are associated directly with the act of producing and change with the level of output. These costs will show diminishing marginal returns, meaning that the cost of producing an additional unit goes up as production increases. Since fixed costs do not affect the future course of actions, particularly in short-term scenarios, they are not considered in making production decisions where only additional marginal gains or losses are relevant.