Energy and natural resources
Cost curve (industry supply curve)
All producers ranked from lowest to highest cost, showing who is the marginal producer.
Last reviewedWhat does Cost curve (industry supply curve) mean?
An industry cost curve lines up every producer (mine, plant or field) from the lowest to the highest cost, with each bar as wide as its capacity. The point where the curve meets demand identifies the marginal producer, the highest-cost one still needed; over time, prices tend to settle near its cost, because if prices fall below it, that capacity shuts. Example: mine A has 5 million tonnes at a cost of 4,000 a tonne, B has 8 million at 5,500, C has 6 million at 7,000 and D has 4 million at 8,500. If demand is 18 million tonnes, all of A and B plus 5 million from C are needed, so C is the marginal producer and prices tend toward about 7,000, while D sits idle. Low-cost producers earn wide margins through the cycle.
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Related terms
- C1 cash costA mine's direct cash cost to produce one unit of metal, after by-product credits.
- Marginal costThe extra cost of making one more unit.
- Merit orderRunning power plants from cheapest to most expensive running cost until demand is met.
- CommoditizationWhen products become interchangeable and compete mainly on price.
- Barrel of oil equivalent (boe)A unit that converts gas into barrels of oil by energy content, so oil and gas can be added together.
- Lifting costThe cost of producing oil or gas from wells that already exist, per barrel.
- Full-cycle breakevenThe oil price a project needs to cover all its costs, including building it, and earn its required return.
- Fiscal breakeven oil priceThe oil price a government needs to balance its budget.