In natural monopolies, firms often set prices _____ average total cost to maintain market share and avoid losses, which can lead to allocative efficiency.

In natural monopolies, firms often set prices below average total cost to keep their market share and prevent losses. This is because they are the only provider of a certain good or service, which gives them the power to influence prices. By pricing below average total cost, they can attract more customers and ensure they continue using their service, which is important for covering their fixed costs over time. For example, a utility company might charge lower prices for electricity to encourage more people to use their service, which helps them maintain a steady income despite their high costs. This practice can lead to allocative efficiency, where resources are used in a way that maximizes overall benefit to society.