This question tests your understanding of modal verbs and past regrets or criticisms in English grammar. The context is that Tom was serious, but the speakers did something that hurt his feelings. The correct phrase must express that laughing at him was a wrong action in the past.

Let's analyze the structure and meaning of each option:

Step 1: Understand the Context
The sentence describes a past event. Tom was serious, but "we" did something (laughed) that we now regret because it hurt him. We need a modal verb phrase that expresses this past regret or criticism of a past action.

Step 2: Analyze the Grammatical Structure
The correct construction for expressing regret about a past action is:
$\text{Modal Verb}+\text{not}+\text{have}+\text{Past Participle}$
This structure is used to say that a past action was a mistake.

Step 3: Evaluate Each Option

• Mustn't have laughed: This is incorrect. "Mustn't" is used for prohibition (e.g., "You mustn't laugh now"), not for past regrets. We use "can't have" or "couldn't have" for deductions about the past, not "mustn't have".
• Shouldn't have been laughed: This is incorrect. This is in the passive voice ("been laughed"), which would mean someone laughed at us. However, the context shows that "we" are the ones who did the laughing. The verb should be in the active voice.
• Needn't have laughed: This is incorrect. "Needn't have" means the action was not necessary (e.g., "We needn't have hurried because the train was late"). It does not convey the meaning of a wrong or regrettable action, which is what the context requires.
• Shouldn't have laughed: This is correct. "Shouldn't have" + past participle is the standard structure used to express regret or criticism about an action that was done in the past. It perfectly fits the meaning: our past action of laughing was wrong, and we regret it now.

Final Answer: The suitable option to fill in the blank is Shouldn't have laughed.

Complete Sentence: Tom was serious when he said he wanted to be an actor when he grew up. We shouldn't have laughed at him. We hurt his feelings.

Related Topic: Modal Verbs of Obligation and Advice

Modal verbs like should, must, and need are used to express obligation, advice, or necessity. Their past forms are used to talk about the past:

• Should have/Shouldn't have: Used to give advice about the past or to express regret. (e.g., "You should have studied harder." "I shouldn't have said that.")
• Must have: Used to make a logical deduction about the past. (e.g., "She must have forgotten the meeting.") Its negative form is can't have or couldn't have.
• Needn't have: Used to say an action in the past was not necessary, even though it was done. (e.g., "I needn't have cooked so much food.")

Key Formula/Structure

The formula for expressing regret or criticism about a past action is:

$\mathrm{Subject}+\text{shouldn't have}+\text{past participle verb}$

Example: I shouldn't have eaten so much cake.