In the international comparison the structure of milk production in Austria is small scale. The present study presents two theoretical approaches to explain the persistence of small dairy farms in Austria: the opportunity cost principle and the theory of the agricultural household. With regard to the first one it is debatable whether the flat rates really can represent the costs of own production factors in their alternative uses in small enterprises. An illustration on the basis of production cost accounts shows that small dairy farms with no possibilities for the utilization of their own production factors (especially for labour) can cover the production costs by revenues only. Secondly it is argued that agricultural production is likely to continue in small dairy farms as long as the enterprise contributes persistently to the household income of the family. Indicators from the Farm Accountancy Data Network (FADN) of voluntarily participating farms in Austria support the notion that labour is allocated efficiently between the enterprise and the household in small operations in order to achieve maximum total income. The study proposes arguments according to which it can be expected that rather small dairy farms are going to be a prominent presence in Austrian agriculture also in the future.