THE REPLACEMENT CRITERION
The economic life of a machine is here defined as the interval of time during which that machine reaches its minimum average yearly cost. If a machine is re- placed by an exact duplicate with the same annualcosts, replacement occurs when the currently owned machine attains its economic life. When average cost reaches its minimum, marginal cost and average cost are equal. This is the same as saying that when eco-nomic life is reached, the actual yearly cost (marginalcost) is equal to the average yearly cost of the machine. Theoretically, replacement should occur when margin-al cost first crosses average cost from below.