In a natural monopoly, it is accurate to say that firms can set prices above average total costs without incurring losses, enabling them to achieve allocative efficiency.

In a natural monopoly, a single firm can produce a good or service at a lower cost than multiple firms could. This happens because the firm benefits from economies of scale, meaning as it produces more, the cost per unit goes down. When it sets prices above average total costs, it can still make a profit, which allows the firm to cover its costs and invest in maintaining or improving its services. For example, a utility company that provides water or electricity can charge a price that is higher than what it costs to produce that service, ensuring it can continue to operate without losing money. This situation can lead to allocative efficiency, where the price reflects the value to consumers, allowing resources to be used in a way that benefits society as a whole.