ECONOMIC theory has su任ered in the past from a failure to state clearly'its assumptions. Economists in building up a theory have often omitted to examine the foundationsoa which it was erected. Tlus examination is, however,essential not only to prevent the misunderstanding and needless controversy wihrich arise from a lack of knowledge of the assumptions on which a theory is based, but also because of the extreme importance for economics of good judgment in choosing betwreen rival sets of assumptions.For instance, it is suggested that the use of the word“ firm "in economics may be different from the use of the term by the。‘ plain man."l   Since there is apparently'a trend m economic theory towards starting analysis with the
individual firm and not with the industry:Y'jt is all the more necessary not only that a clear definition of the word"firm" should be given but that its difference from a firm in the" real world," if it exists, should be made clear.Mrs. Robinson has said that  "the two questions to be asked of a set of assumptions m economics are: Are they tractable ?  and :  Do they correspond with the real world ?"Though, as Mrs. Robinson pomts out,“ more often one set
will be manageable and. theY other realistic," yet there may well be branches of theory where assumptions may be both manageable and realistic.  It is hoped to show in the followmg paper that a definition of a firm may be obtained which is not only realistic in that it corresponds to what is meant by a firm in the real world, but is tractable by two of the most powerful instruments of economic analysis developed by Marshall, the idea of the margin and that of
substitution,