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 replaced
by an exact duplicate with the same annual
costs, 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 economic
life is reached, the actual yearly cost (marginal
cost) is equal to the average yearly cost of the machine.
Theoretically, replacement should occur when marginal
cost first crosses average cost from below.