So are large numbers of small rockets preferable, efficiency wise, to a few large ones (think the five F-1s of the Saturn V first stage). Or they cheaper in aggregate? Or are they more reliable?
In general, smaller numbers of larger engines are the preferred choice. It's more reliable, and cheaper to design and manufacture. (All that extra plumbing and thrust structure runs up the cost and weight.)
Or did Space-X just not have the funds to develop a really big engine (In which case couldn't they have licensed the design for the F-1 or J-1 from NASA?).
No, they didn't have the funds or the time or the experience to develop a larger engine, so they made lemons out of lemonade.
The F-1 would have required extensive re-desgn to be manufactured with modern methods and materials, and is a very expensive and complex design. The J-2 is a LOX/LH2 engine, and on top of also requiring an expensive re-design and requalification program (same as the F-1), would have had considerably increased operational costs.