Issues in economies of scale and optimal school size are discussed in this paper, which seeks to explain the curvilinear nature of the educational cost curve as a function of "transaction costs" and to establish "optimal size" as a relative concept. Based on the argument that educational consolidation has facilitated diseconomies of scale, the economic concept of transaction costs is combined with the sociological concept of school culture to explain why small schools function better than expected. The impact of other social forces on school size--standards, available technology, and governance structures--are also described. A conclusion is that new patterns of governance and school organization render understandings about the relationships among school/district size, cost, and outcomes obsolete. (18 references) (LMI)