It is because the master is cut the same way it is played.
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It is possible because it is 33.33 revolutions, not inches per second. So yes, at the inner grooves the information is compressed into a smaller space. This is why resolution suffers at the inner grooves. Mistracking is also greater due to the increased radius of curvature. As Tom so aptly points out, if you cut the record this way it will play back the same way. Interestingly, the compact disc varies its rotational speed so as to keep a like amount of information always being read. Compact discs also read from the innermost point to the outermost, the opposite of LPs.
Weisera - You're confusing angular velocity with linear velocity. The angular velocity of the LP is 33 and a third revolutions per minute (RPM). This value applies to all points of the record (except the point at the geometric center.)
The linear velocity, however, does vary with radial distance from the center of the record. The linear velocity of a point on the record is equal to the product of the point's distance from the center (effective radius) and the angular velocity of the record.
Thus the linear velocity of a point 3 inches from the center of a record with an angular velocity of 33 and a third RPM would be 100 inches per minute.
So what does this mean? All things being equal, the higher the linear velocity at the stylus, the better the sound. Thus an LP sounds its best toward the outside of the record, and its worst at toward the inner grooves.
That's why some audiophile records are cut with large runout zones. They avoid using the inner third or so of the record to keep the sound quality up. Another strategy is to cut the record at 45 RPM, which increases the linear velocity at all points of the record by about 135% ((45/33.33)x100%), but cuts overall playing time by about 20%.
In real life a cutting engineer has to balance fidelity across the record, required playing time on the side, bass response, and dynamic range. The latter two items affect groove width, and thus impact playing time.