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Economics

Q. Suppose a factory can produce a shirt for the equivalent cost of 2 loaves of bread, and a household can produce a shirt for the equivalent cost of 6 loaves of bread. The factory is located in a rural area with a uniform population density. It costs the equivalent of 1 loaf of bread for a household to make a one mile round-trip to and from the factory.

a. Assuming zero profit (the consumer pays the factory's cost of production only); what will be the radius of the factory's market area?

b. Now suppose the factory develops an innovation that allows it to produce a shirt for the equivalent of 1 loaf of bread. What is the new radius of the factory's market area?

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