In a natural monopoly, which pricing strategy is often recommended to ensure efficiency and consumer welfare?

In a natural monopoly, where a single company can supply a good or service more efficiently than multiple companies, a pricing strategy known as "marginal cost pricing" is often recommended. This means the price is set equal to the cost of producing one more unit of the good, encouraging the company to produce the quantity that meets consumer demand without overcharging. By using this strategy, the company can cover its costs while ensuring that consumers pay a fair price, promoting greater access to the service. For example, if a water company can supply water at a low cost but charges high prices, fewer people may be able to afford it, leading to inefficiency. Therefore, marginal cost pricing helps balance the needs of the company and the welfare of consumers.