![]() By plotting the costs of various levers for abating carbon emissions, organizations can identify the most economically viable options. The cost curve’s enduring power is evident in its use in addressing climate change. Carbon traders use marginal abatement cost curves to derive the supply function for modelling carbon price fundamentals. Ideally suited to commodity products, it is also applicable where real quantifiable differences in value exist-for example, the length of time for ocean transit. The industry cost curve brings microeconomic rigor to pricing analyses, while still requiring some finesse in teasing out the most powerful insights. By weighing the trade-offs, a company can ground its strategy on the market’s predicted price and profit sensitivities, as well as its competitors’ actions. Provided that a firm is producing output, the supply curve is the same as marginal cost curve. ![]() ![]() Linear programming helped to unscramble a number of options for products, users, and locations, yielding a series of simpler market situations for which the curve can be plotted. They defined the important variables involved in this curve and the methods for applying it to real-world, competitive markets. ![]() Early in that decade, McKinsey consultants started looking for ways to unravel the complexity.
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