I'd be surprised if Apple came out with something smaller. it would cut into the profits. Having a unique product means there is no competition. But if you add a smaller size [say 7"], those who may not be able to afford [or barely] a 10" iPad will choose the smaller edition. But if there was no 7" edition it's either the 10" or go elsewhere [but of course fanbois and fangurls would never buy anything that competes against Apple - so they'd by the iPad).
It's obvious Apple thinks they are the only tablet manufacturer out there when their TV ads state the new iPad has a clearer and better screen [implying better than the iPad 2].