Giocattolo is a profit-maximizing firm producing toy carsa capital-intensive goodwhich are sold in its home country, Italy, and abroad in Spain. Giocattolo chose foreign production as a method of penetrating the Spanish market and has to decide whether it is more efficient to directly invest in Spain to establish a production subsidiary or to license the technology to a Spanish firm to produce its goods. On the following graph, AVCSpain is the average variable cost curve of a Spanish firm producing toy cars. (This curve represents costs such as labor and materials.) The curve ATCSubsidiary represents the total unit costs Giocattolo will face if it establishes a subsidiary in Spain. 0 15 30 45 60 75 90 105 120 135 150 10 9 8 7 6 5 4 3 2 1 0 PER-UNIT COST (Dollars) PRODUCT (Thousands) ATC Subsidiary AVC Spain