The paradox occurs because both location and intensity are encoded by the rate of action potential production, i.e., it is impossible (at the receptor/primary afferent level) to distinguish between a stimulus that is large in amplitude but activates a small portion of the receptive field from a stimulus that is smaller in amplitude but activates a larger component of the receptive field.  The central nervous system resolves this paradox by the process of lateral inhibition, whereby the area of sensation is reduced relative to the area of receptor activation.