Consider a region where households produce and consume musical performances, either live performances or free recorded performances transmitted over the Internet into homes. After accounting for price, the utility from a live performance is three times the utility from recorded music. There are scale economies in the production of live music, which are provided at a performance center at the center of the region.
a. Using Figure 2-1 as an inspiration, depict graphically a method for determining the market area of the performance center. Hint: The vertical axis measures utility rather than price.
b. Suppose the demand for live performance is income-elastic, and the demand for recorded performances is independent of income. Use a second graph to show the effect of an increase in consumer income on the market area of the performance center.