392 ECONOMICA NOVEMBER the service which is being provided is expressed in general terms,the exact details being left until a later date.All that is stated in the contract is the limits to what the persons supplying the commodity or service is expected to do. The details of what the supplier is expected to do is not stated in the contract but is decided later by the purchaser. When the direction of resources (within the limits of the contract)becomes dependent on the buyer in this way, that relationship which I term a "firm"may be obtained. A firm is likely therefore to emerge in those cases where a very short term contract would be unsatisfactory.It is obviously of more importance in the case of services- labour-than it is in the case of the buying of commodities. In the case of commodities,the main items can be stated in advance and the details which will be decided later will be of minor significance. We may sum up this section of the argument by saying that the operation of a market costs something and by forming an organisation and allowing some authority (an "entrepreneur")to direct the resources,certain marketing costs are saved.The entrepreneur has to carry out his function at less cost,taking into account the fact that he may get factors of production at a lower price than the market transactions which he supersedes,because it is always possible to revert to the open market if he fails to do this. The question of uncertainty is one which is often considered to be very relevant to the study of the equilibrium of the firm.It seems improbable that a firm would emerge without the existence of uncertainty.But those,for instance, Professor Knight,who make the mode of payment the distinguishing mark of the firm-fixed incomes being guaranteed to some of those engaged in production by a person who takes the residual,and fluctuating,income- would appear to be introducing a point which is irrelevant to the problem we are considering.One entrepreneur may sell his services to another for a certain sum of money, while the payment to his employees may be mainly or wholly a share in profits.3 The significant question would Of course,it is not passible to deaw a hard and fast line which determines whether there is a firin or not There may be more or less direetion.It is similat ta the legal questfwheche there is the reiationship of master and seranor principal and agent. See the discussion of this problem helow. The vievrs of Professor Knight are examined below in more detail