What is a natural monopoly?

A natural monopoly occurs when a single company can supply a product or service to an entire market more efficiently than multiple companies could. This usually happens in industries where the costs of production are very high, such as water supply or electricity. For example, if a city builds one water treatment plant, it can provide water to everyone in that city at a lower cost than if several companies each built their own plants. Because having more than one supplier would lead to higher costs and waste, it makes sense for one company to serve the whole area. In these cases, governments often regulate the monopoly to ensure fair prices and good service for consumers.