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1. One option is to introduce a "universe" $V_\kappa$ (which, if we're actually trying to work in ZFC, will be a weaker sort of universe than usual). We'll interpret "small" to mean "in $V_\kappa$". We won't consider "truly large objects" -- everything we talk about will be a set -- in particular, every category we talk about will be set-sized, even if not "small" per se. We'll interpret "locally presentable category" to mean "$\kappa$-cocomplete, locally $\kappa$-small category with a strong $\kappa$-small, $\lambda$-presentable generator for some regular $\lambda < \kappa$" (I don't know if it makes a difference to say that $V_\kappa$ thinks $\lambda$ is a regular cardinal).

2. Another option is to not introduce any universe, and just interpret "small" to mean "set-sized". In this case, any "large" object we talk about must be definable from small parameters. So we define a category to comprise a parameter-definable class of objects, a parameter-definable class of morphisms, etc. This might seem restrictive, but it will work fine in the locally presentable case, since we can define a locally presentable category $\mathcal C$ to be defined, relative to parameters $(\kappa, \mathcal C_\kappa)$ (where $\kappa$ is a regular cardinal and $\mathcal C_\kappa$ is a small $\kappa$-cocomplete category), as the category of $\kappa$-Ind objects in $\mathcal C_\kappa$.

Now, for the theorem at hand, approach (2) seems cleaner. I think the main drawbacks of (2) come elsewhere. For instance it will probably be a delicate matter to formulate theorems about the category of locally presentable categories. In general, there will be various theorems about categories which have clean, conceptual formulations and proofs when the categories involved are small, but which require annoying technical modifications when the categories involved are large. It's for such reasons that approaches more like (1) tend to be favored for large-scale category-theoretic projects.

1. One option is to introduce a "universe" $V_\kappa$ (which, if we're actually trying to work in ZFC, will be a weaker sort of universe than usual). We'll interpret "small" to mean "in $V_\kappa$". We won't consider "truly large objects" -- everything we talk about will be a set -- in particular, every category we talk about will be set-sized, even if not "small" per se. We'll interpret "locally presentable category" to mean "$\kappa$-cocomplete, locally $\kappa$-small category with a strong $\kappa$-small, $\lambda$-presentable generator for some regular $\lambda < \kappa$" (I don't know if it makes a difference to say that $V_\kappa$ thinks $\lambda$ is a regular cardinal).

2. Another option is to not introduce any universe, and just interpret "small" to mean "set-sized". In this case, any "large" object we talk about must be definable from small parameters. So we define a category to comprise a parameter-definable class of objects, a parameter-definable class of morphisms, etc. This might seem restrictive, but it will work fine in the locally presentable case, since we can define a locally presentable category $\mathcal C$ to be defined, relative to parameters $(\lambda, \mathcal C_\lambda)$ (where $\lambda$ is a regular cardinal and $\mathcal C_\lambda$ is a small $\lambda$-cocomplete category), as the category of $\lambda$-Ind objects in $\mathcal C_\lambda$.

Now, for the theorem at hand, approach (2) seems cleaner because the necessary "tranlsation" is straightforward, and once it is done, the original proof should work without modification. I think the main drawbacks of (2) come elsewhere. For instance it will probably be a delicate matter to formulate theorems about the category of locally presentable categories. In general, there will be various theorems about categories which have clean, conceptual formulations and proofs when the categories involved are small, but which require annoying technical modifications when the categories involved are large. It's for such reasons that approaches more like (1) tend to be favored for large-scale category-theoretic projects.

1. One option is to introduce a "universe" $V_\kappa$ (which, if we're actually trying to work in ZFC, will be a weaker sort of universe than usual). We'll interpret "small" to mean "in $V_\kappa$". We won't consider "truly large objects" -- everything we talk about will be a set -- in particular, every category we talk about will be set-sized, even if not "small" per se. We'll interpret "locally presentable category" to mean "$\kappa$-cocomplete category with a strong $\kappa$-small, $\lambda$-presentable generator for some regular $\lambda < \kappa$" (I don't know if it makes a difference to say that $V_\kappa$ thinks $\lambda$ is a regular cardinal).

2. Another option is to not introduce any universe, and just interpret "small" to mean "set-sized". In this case, any "large" object we talk about must be definable from small parameters. So we define a category to comprise a parameter-definable class of objects, a parameter-definable class of morphisms, etc. This might seem restrictive, but it will work fine in the locally presentable case, since we can define a locally presentable category $\mathcal C$ to be defined, relative to parameters $(\kappa, \mathcal C_\kappa)$ (where $\kappa$ is a regular cardinal and $\mathcal C_\kappa$ is a small $\kappa$-cocomplete category), as the category of $\kappa$-Ind objects in $\mathcal C_\kappa$.

1. One option is to introduce a "universe" $V_\kappa$ (which, if we're actually trying to work in ZFC, will be a weaker sort of universe than usual). We'll interpret "small" to mean "in $V_\kappa$". We won't consider "truly large objects" -- everything we talk about will be a set -- in particular, every category we talk about will be set-sized, even if not "small" per se. We'll interpret "locally presentable category" to mean "$\kappa$-cocomplete, locally $\kappa$-small category with a strong $\kappa$-small, $\lambda$-presentable generator for some regular $\lambda < \kappa$" (I don't know if it makes a difference to say that $V_\kappa$ thinks $\lambda$ is a regular cardinal).

2. Another option is to not introduce any universe, and just interpret "small" to mean "set-sized". In this case, any "large" object we talk about must be definable from small parameters. So we define a category to comprise a parameter-definable class of objects, a parameter-definable class of morphisms, etc. This might seem restrictive, but it will work fine in the locally presentable case, since we can define a locally presentable category $\mathcal C$ to be defined, relative to parameters $(\kappa, \mathcal C_\kappa)$ (where $\kappa$ is a regular cardinal and $\mathcal C_\kappa$ is a small $\kappa$-cocomplete category), as the category of $\kappa$-Ind objects in $\mathcal C_\kappa$.

Theorem [Quillen] "The small object argument": Let $\mathcal C$ be a locally presentable category, and let $I \subseteq Mor \mathcal C$ be a small set of morphisms. Then there is a smallest weak factorization system $(\mathcal L,\mathcal R)$ on $\mathcal C$ with $I \subseteq \mathcal L$ ("smallest" means that $\mathcal L$ is as small as possible). Moreover, $\mathcal L$ comprises precisely the retracts of transfinite composites of cobase-changes of coproducts of morphisms in $I$, $\mathcal R$ comprises the morphisms weakly right orthogonal to $\mathcal L$, and the factorization system can be made functorial, via an accessible factorization functor.

Theorem [Quillen] "The small object argument": Let $\mathcal C$ be a locally presentable category, and let $I \subseteq Mor \mathcal C$ be a small set of morphisms. Let $\mathcal L \subseteq Mor \mathcal C$ be the class of retracts of transfinite composites of cobase-changes of coproducts of morphisms in $I$, and let $\mathcal R \subseteq Mor \mathcal C$ comprise those morphisms weakly right orthogonal to the morphsims of $I$. Then $(\mathcal L, \mathcal R)$ is a weak factorization system on $\mathcal C$.