In the context of natural monopolies, what is the main reason regulatory oversight is necessary for achieving socially optimal pricing and minimizing welfare loss?

Natural monopolies occur when a single company can supply a good or service more efficiently than multiple companies, often due to high fixed costs and low marginal costs. Without regulatory oversight, these monopolies might set prices too high, leading to decreased access for consumers and a loss of overall welfare. For example, if a water company charges excessively for its service, low-income families might struggle to afford it, resulting in some people going without water. Regulatory oversight helps ensure that prices remain fair and accessible, allowing more people to benefit from essential services while also encouraging the company to operate efficiently. This balance helps promote a healthier economy and ensures that all members of society can access necessary resources.