Does economy of scale apply to universities? On the one hand, it seems like &quot;no&quot; - hence some universities like Caltech choose to remain small, while others like Boston University &amp; MIT don't merge into a single super-university in spite of having campuses that are side-by-side.
On the other hand, I don't see why it wouldn't apply. There should be an advantage to pooling resources, e.g. with library subscriptions, campus transport, and so on. At the academic level, more students/faculty would also allow the university to teach more specialized subjects.
Does economy of scale apply to universities? If yes, why are Caltech, Boston University/MIT etc (and Imperial/UCL for that matter) making the decisions they do? If not, why not?
Yes, economy of scale does apply to universities.  Having more students reduces the operating cost per student.
The universities you have listed are research universities.  They prioritise spending on research, and not students.  They do not care about revenue as they have plenty of money and do not exist for the purpose of gaining more money.
For institutions that have little money and get most of their money from students, I've sometimes heard it said that 300 students is &quot;enough&quot; to achieve economy of scale.
Some universities achieve economy of scale using purchasing consortia.  In these constoria, several universities work together to negotiate a favorable contract from a vendor.  This is quite common for public universities.