Final answer:
A natural monopoly occurs when it is more efficient to have a single provider of a product or service rather than multiple competing providers. For public utilities like water and electricity, it is better to have one utility serving a city due to cost-effectiveness, simplified billing, and ease of innovation.
Step-by-step explanation:
A natural monopoly occurs when it is more efficient to have a single provider of a product or service rather than multiple competing providers. In the case of public utilities, such as water and electricity companies, it is more cost-effective and practical to have one utility serving a city. This is because installing multiple sets of infrastructure, such as pipes or wires, for each utility would be expensive and unnecessary.
Having one utility also simplifies billing for customers, as they only have to deal with a single provider. Additionally, a single utility can implement innovations and improvements more easily since they don't have to coordinate with multiple companies. However, it is important to regulate natural monopolies to prevent them from abusing their power and charging excessively high prices.