Final answer:
Natural monopolies are often regulated by the government due to their unique cost structure and challenges. Government regulation ensures fair pricing and quality of service.
Step-by-step explanation:
A natural monopoly arises when average costs are declining over the range of production that satisfies market demand. This typically happens when fixed costs are large relative to variable costs. Natural monopolies are often regulated by the government due to their unique cost structure and challenges. Government regulation ensures fair pricing and quality of service.
As a result, one firm is able to supply the total quantity demanded in the market at lower cost than two or more firms. Due to the challenges and structure of costs and demand, natural monopolies are often regulated by the government to prevent high prices and restricted output. Government regulation plays a crucial role in ensuring fair pricing and quality of service in industries such as public utilities.