Question: In the course of producing its output a firm causes
In the course of producing its output, a firm causes pollution. The government passes a law that requires the firm to stop polluting, and the firm discovers that it can prevent the pollution by hiring x workers for every worker that is producing output. That is, if the firm hires N workers, then xN workers are required to clean up the pollution caused by the N workers who are actually producing output. Determine the effect of the pollution regulation on the firm's profit-maximizing choice of labor input, and on the firm's labor demand curve.
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