A natural monopoly can arise when fixed costs required to operate are very high. When this occurs, the firm’s ATC curve declines over the range of output at which price is greater than or equal to average total cost. This gives the firm increasing returns to scale over the entire range of output at which the firm would at least break even in the long run. As a result, a given quantity of output is produced more cheaply by one large firm than by two or more smaller firms.