In a natural monopoly, why might a firm set prices below average total costs?

In a natural monopoly, a firm may set prices below average total costs to attract more customers and increase its market share. This is often done because the firm has a large fixed cost, meaning that it spends a lot of money to set up its operations but has low variable costs for providing the service. By lowering prices, the firm hopes to cover its fixed costs over time as it gains more customers, even if it is not making a profit initially. For example, a utility company might charge low rates for electricity to encourage households to sign up, expecting that over time, the increased number of customers will help it recover its initial investments. This strategy can help the company become more efficient and ultimately sustain its operations in the long run.