You are correct, you should get a 1.5" circle if you programmed a 2" circle and cut it with a .5" cutter. Lets take out the comments in the file to have an easier look at it. There is not a cutter comp called in the code. The circle is 2.5" as coded , not 2" with comp on. If you cut it with a .5" cutter, you should get a 2" circle. You say that your getting a 1.75" circle though, so something is still wrong. You say that your steps are set correctly and the machine does truly move the commanded distance when told.The only thing I can think of that might give you a 1.75" circle would be that your using a larger cutter instead of a .5" cutter. Maybe someone else can chime in with a better explanation, and enlighten both of us. As for a note on the cutter comp...It is being modified in the newer version of Mach. I do not know the specifics on the changes, I'm sure there is a post somewhere here going into detail about comp. Sorry I can't be of any more help to you in that regard.
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O0000
N100 G00 G17 G20 G40 G49 G80 G90
N104 T1 M06
N110 G00 Z.1
N112 G00 X-2.25 Y.5 S1069 M03
N114 G01 Z-.1 F30.
N116 X-1.75
N118 G02 X-1.25 Y0. I0. J-.5
N120 G03 I1.25 J0.
N122 G02 X-1.75 Y-.5 I-.5 J0.
N124 G01 X-2.25
N126 Z0.
N128 M05
N130 G90
N132 M30
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