Assume a factory can form a shirt for the equivalent cost of 3 loaves of bread, and a household can form a shirt for the equivalent cost of 10 loaves of bread. The factory is located in a rural area with a uniform population density. It costs the equivalent of .5 loaf of bread for a household to make a one mile round-trip to and from the factory.
1. What will be the radius of the factory's market area, assuming zero profit (the consumer pays the factory's cost of production only).
2. What is the new radius of the factory's market area? Now suppose the factory develops an innovation that allows it to produce a shirt for the equivalent of 1 loaf of bread.