Optimal capacitor placement, considering power system loss reduction, voltage profile improvement, line reactive power decrease and power factor correction, is of particular importance in power system planning and control. The distribution system operator calculates the optimal place, number and capacity of capacitors based on two major purposes: active power loss reduction and return on investment maximization. In this paper, the optimization problem of various values of economic amount of reactive power is formulated; then after evaluation of objective function and implementation of optimization algorithm for each value, the optimum capacity of capacitors and their arrangement in load nodes of power system are extracted. Also, using the proposed objective function, the threshold price of reactive power selling can be calculated; thus the investment of capacitor installation will be beneficial for distribution system operator Manuscript profile