What defines a natural monopoly?

A natural monopoly exists in a market where a single firm can produce the total output for the market at a lower cost than multiple firms. This often happens in industries that require significant infrastructure investment, such as utilities (water, electricity, natural gas), where the fixed costs are high. Because one large firm can serve the entire market demand more efficiently than several smaller firms, it leads to economies of scale.

In the case of a natural monopoly, having only one firm minimizes duplication of facilities and resources, leading to lower costs for consumers. Therefore, the characteristic of a market that is most efficient with one large firm directly corresponds to the definition of a natural monopoly.

While other options mention aspects related to competition or regulatory environments, they do not capture the essence of why a natural monopoly is characterized by a single, large firm providing goods or services more efficiently than multiple competing firms.