Optimization of thermal systems is generally based on thermodynamic analysis. However, the systems so optimized often are not viable due to economic constraints. The Theory of Exergetic Cost, a thermoeconomic optimization technique, combines the thermodynamic analysis with that of economic constraints to obtain an optimum configuration of a thermal system. In this paper, this technique is applied to optimize a LiBr/H2O vapour absorption refrigeration system run by pressurized hot water for air-conditioning applications. The mathematical and numerical techniques-based optimization of thermal systems is not always possible due to plant complexities. Hence, a simplified cost minimization methodology, based on 'Theory of Exergetic Cost', is applied to evaluate the economic costs of all the internal flows and products of the system under consideration. As shown in this paper, once these costs are determined, an approximately optimum design configuration can be obtained. © 2002 Elsevier Science Ltd. All rights reserved.