Economics of scale is defined as that case wherein the lowest cost per unit of output is incurred, that is, average cost declines as output increases. It is a widely-accepted fact that economics of scale exist in the agricultural and industrial sectors of the economy. Simply put, with mass production and with the application of mechanization and automation, the unit cost of production is relatively reduced. The question therefore arises, whether the concept of economies of scale exist in the educational sector and may it be made applicable particularly to State Universities and Colleges (SUCS), or to universities and colleges which are subsidized by the national government.
However, it must be emphasized that this is not an oversimplification of the issue at hand, because any suggestion to reduce unit costs in education equivalent to mechanization and automation is certain to provoke reactions about the quality of education and how it may suffer.
It is interesting to know if there is an optimum organization of schools which has as one of its features, schools of the most economic size, given a specific set of educational objectives and considerations. Hence, the study of educational costs has aimed at deriving statistical means to help decision-makers plan the sizes of their schools. It is believed that a certain degree of knowledge of the costs and benefits of producing different levels and mixes of educational output is necessary for the people responsible for the development of the educational system. In essence, comparison of costs and benefits ultimately determines the overall size of the educational budget, the broad allocation of the budget between the major educational sectors, as well as more detailed choices relating to curricula, class sizes, teaching methods, etc.. This study is significant since it will highlight the way of analyzing the efficiency of SUCs.