Final answer:
When the cost of production exceeds the profit from sales, producers should reduce the quantity of output to maximize profits.
Step-by-step explanation:
When the cost of producing a product exceeds the profit received from its sale, the producer reaches a point where it is no longer profitable to continue producing. This happens when the marginal cost (MC) exceeds the marginal revenue (MR) for each additional unit produced. To maximize profits, the producer should reduce the quantity of output until MR equals MC.
For example, if a farmer is producing at a level where the marginal cost is greater than the marginal revenue, increasing production will result in higher costs that exceed the additional revenue gained from selling the product. In this case, the farmer should reduce the quantity of output to increase profits.
In summary, when the cost of production exceeds the profit from sales, producers should reduce the quantity of output to maximize profits.