The figure given below shows three Short Run Average Total Cost (SRATC) curves and the Long Run Average Total Cost (LRATC) curve of a firm.Figure 8.3
-Economies of scale exist when the long-run average-total-cost curve is positively sloped.
Definitions:
Transfer Price
The price at which divisions of a company transact with each other, often used for budgeting and tax purposes.
Market Price
The current price at which a good or service can be bought or sold in a given market.
Marginal Cost
The rise in expenses for the production of an additional unit of a product or service.
Downstream Division
A sector of a company or industry that focuses on the final stages of production and distribution to end-users, often involving refining, selling, and distribution processes.
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