Natural monopolies are usually set up in order to provide a public service.
1. **Explanation**: Natural monopolies occur when a single company can provide a good or service at a lower cost than multiple firms due to the high fixed costs of infrastructure and distribution networks. These industries, such as water supply or electricity, are typically essential services that are best operated as monopolies to prevent duplication of infrastructure and keep costs lower for consumers.
2. **Example**: A classic example of a natural monopoly is the provision of tap water in a city. It would be inefficient and costly to have multiple companies digging up the streets to lay down separate pipes for water supply. Therefore, a single company usually manages the water distribution system in an area to ensure reliable and affordable service to all residents.
Therefore, natural monopolies are established primarily to ensure the provision of essential public services efficiently and effectively.
