Final answer:
The firm should not produce an additional unit of output when marginal cost exceeds marginal revenue, as it would lead to a decrease in profit. The firm should aim to produce up to the point where marginal revenue equals marginal cost.
Step-by-step explanation:
When the marginal cost of an additional unit of output exceeds the marginal revenue, the firm should not produce that additional unit of output. Producing further would mean that each additional unit will not cover its own cost, leading to a reduction in overall profit. Therefore, the main answer to the multiple-choice question is that the firm should not produce the additional unit of output.An explanation for this decision involves the concept of profit maximization where firms equate marginal revenue and marginal cost to determine the optimal level of production. If producing another unit costs more than the revenue it generates, the firm is making a loss on that unit. As a result, to maximize profits, the firm should reduce output until marginal revenue equals marginal cost.In conclusion, understanding the relationship between marginal cost and marginal revenue is crucial for firms making production decisions. If marginal costs exceed marginal revenue, the firm should refrain from increasing output to ensure that its profits are not adversely affected.