There is an obvious answer to this question; a question pontificated over by the greatest minds in the world ( Einstein, Edison, Smirnoff, Wizards the world over, etc).
To think that the answer would come from a 22 year old sleep deprived male sitting alone in his bedroom.
The reason is simple. Elves are tiny because Santa Clause is also a rather short man. To keep him from feeling inferior the elves are put through machines where their growth is constricted and limited. This also allows their tiny hands to fit into tiny toys and other small trinkets. This bodes well for the reindeer during their enema times.
It’s monday every week. Got to get them to fly somehow.