In this paper, the thermoeconomic concept is applied to the optimization of an aqua-ammonia vapour-absorption refrigeration (VAR) system - aimed at minimizing its overall product cost. The thermoeconomic concept based simplified cost minimization methodology calculates the economic costs of all the internal flows and products of the system by formulating thermoeconomic cost balances. The system is then thermoeconomically evaluated to identify the effects of design variables on costs and thereby enables to suggest values of design variables that would make the overall system cost-effective. Based on these suggestions, the optimization of the system is carried out through an iterative procedure. The results show a significant improvement in the system performance without any additional investment. Finally, sensitivity analysis is carried out to study the effect of the changes in fuel cost to the system parameters. © 2005 Elsevier Ltd and IIR. All rights reserved.