We present an equilibrium theory for strain relaxation in epitaxial layers grown on substrates of a finite dimension. The conventional dislocation model is refined to take account of the multiple reflection of image dislocations. The effect of strain transfer and dilution due to finite vertical and lateral dimensions of the substrate is also considered. The critical thickness has been obtained based on an energy balance approach. Detailed numerical analysis with primary experiments for the SiGe alloy system is also provided.