In a natural monopoly, a single firm is typically more efficient due to:

A natural monopoly occurs in a market where a single firm can produce the entire market output at a lower cost than if multiple firms were to operate. This efficiency arises primarily from economies of scale, which refer to the cost advantages that a firm experiences as its production scale increases. In industries that are considered natural monopolies, such as utilities (water, electricity, etc.), the fixed costs of infrastructure and production are very high.

As production expands, the average cost per unit decreases because the firm can spread its fixed costs over a larger quantity of output. Thus, a single firm can serve the entire market more efficiently than multiple firms, avoiding the duplication of infrastructure and services. This ability to lower costs through increased production is what makes a natural monopoly typically more efficient.

In contrast, intense competition often leads to inefficiencies in markets that are prone to natural monopoly characteristics, as firms may not achieve the same economies of scale. High market demand is a condition that can exist alongside a natural monopoly, but it does not inherently create efficiency. Government intervention can shape the operation of natural monopolies by regulating pricing or service, but it is not the reason why a single firm in such a scenario is efficient.