A natural monopoly occurs whenever maximum efficiency is achieved through a single supplier rather than through a number of competing suppliers.
A natural monopoly generally occurs in industries where the fixed costs of production are so high that it is not profitable for a second firm to enter and compete.
In the water industry there is a “natural” reason for the existence of a monopoly, namely that the Minimum Efficient Scale (MES) occurs at such a large proportion of total output that only one firm could produce at the point where AC are minimised. For example, if the MES occurred at 70% of the total output of the water industry then clearly only one firm could operate in this industry efficiently.
marlinbito answered the question on July 8, 2018 at 16:41
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