bigger chips is not cost effective for manufacturers, as these thnigs are produced in Silicon wafers which are individually expensive. so there is a economical interest in fitting as many chips as possible per Unit.
this also falls into the 2nd part: Yield, some chips will be faulty at production, a smaller chip means a faulty unit wont be as much of a loss.
There are two major limitations to device speed – capacitance and distance. When a transistor turns on, the signal it generates has to reach the next transistor. First, current has to flow through the transistor to charge up the capacitance of the link to that transistor, and the next transistor – so the smaller, the better – and the signal has to travel the length of the link – so the shorter the better.
By making transformers smaller, the links become both smaller and shorter, so devices can work faster.
On top of the other answers here look at Moore’s law. Transistor counts double every two years. If you double the size of your chip you’re really not jumping really far ahead of the curve in terms of transistor count and you’ve doubled the footprint of your chip. Do it again and now your chip is four times the footprint and all for minimal gain
The speed of light limits the size of chips. With a 3 Ghz processor, light travels about an inch per cycle (electricity in silicon moves a bit slower than that). Anything that has to happen in one cycle can’t have a longer path than that.
You can get around this by putting in multiple cores, to an extent. You can split up a program so that each core handles separate tasks (threading), but there’s diminishing returns because they can’t share the tasks. If your program has 3 tasks, with one task taking 50 cycles and the others taking 25 cycles, then with one core it takes 100 cycles, with two cores it takes 50 cycles, with three cores it takes 50 cycles, and with 16 cores it still takes 50 cycles.
So you have a limited amount of space. With space not being infinite each application would in theory have a maximum volume that the GPU and CPU can occupy. No one wants a Computer that takes up a full room anymore. So how do you increase the amount of something you want when you have a space constraint? You increase its density. So by shrinking the size of the transistors now we can fit more into the same space or put the same amount of into a smaller space.
If you do want to build a computer of colossal size it will now be able to be more powerful by taking advantage of the faster chipsets or (hopefully) less expensive by taking advantage of the older and less performance dense chips.
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