Competition usually keeps the product price below the price charged by a monopoly, a sole supplier to the market. In rare instances, however, a monopoly can produce and sell the product for less than could competing firms When it is cheaper for one firm to serve the market than for two or more firms to do so, that one firm is called natural monopoly. Since a natural monopoly faces no competition, it maximizes profit by charging a higher price than would be optimal from society’s point of view. A lower price and greater output would be improve social welfare. Therefore, the government usually regulates the natural monopoly, forcing it to lower its price and increase output.
