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When you are deciding whether to continue with the business or not, do you compare the revenue lost with Fixed Costs or Marginal costs ??? Or both ?? And why ? On what basis do you decide that the business should shut down or not ?????
If revenue is less than marginal costs, you will never make a profit no matter what your volume because costs increase faster than revenue.
If you were to stop manufacturing you would avoid marginal costs and receive no revenue. You would still be left with some fixed costs (such as rent of premises that you are legally obliged to pay), but might avoid some other fixed costs (for example, by making admin staff redundant).
Even if fixed costs cannot be saved, avoiding a negative contribution (ie when marginal costs are greater than revenue) will mean any loss is smaller.
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