394 ECONOMICA NOVEMBER less transaction or one more It is interesting to note that Professor Knight considers that "the relation between efficiency.and size is one of the most serious problems of theory,being,in contrast with the relation for a plant,largely a matter of personality and historical accident rather than of intelligible general principles.But the question is peculiarly vital because the possibility of monopoly gain offers a powerful incentive to continuous and unlimited expansion of the firm,which force must be offset by some equally powerful one making for decreased efficiency (in the production of money income)with growth in size,if even boundary competition is to exist." Professor Knight would appear to consider that it is impossible to treat scientifically the determinants of the size of the firm.On the basis of the concept of the firm developed above,this task will now be attempted. It was suggested that the introduction of the firm was due primarily to the existence of marketing costs.A pertinent question to ask would appear to be (quite apart from the monopoly considerations raised by Professor Knight),why,if by organising one can eliminate certain costs and in fact reduce the cost of production,are there any market transactions at all Why is not all production carried on by one big firm There would appear to be certain possible explanations. First,as a firm gets larger,there may be decreasing returns to the entrepreneur function,that is,the costs of organising additional transactions within the firm may rise.Naturally,a point must be reached where the costs of organising an extra transaction within the firm are equal to the costs involved in carrying out the transaction in the open market,or,to the costs of organising by another entrepreneur.Secondly,it may be that as the transactions which are organised increase,the entrepreneur fails to place the factors of production in the uses where their value Ritk Uncertainty and Profit Preface to the Re-issue:1.ondon Schoal af Ecqucmmics Series of Reprints Na.16,1933. There are certin marketing costs which could on be cfiminatod by the abolition of consumers'choice"and these are the costs of retailitg.It is canceivsble that these costs might be so high that people would be willing to accepr ratious beeause the extra produet abeained waa worth the loss of their choice 3 This argument assumes that exchange transactinus on a markee can be consideted as hamogenenus:which is clearly unttue in fact This cninplicarinn is taken into account below