As the thickness of the insulation increases, the cost of material and installation also goes up. The cost of lost energy, on the other hand, goes up. The cost of lost energy, on the other hand, goes down up to a certain thickness. Above this thickness, the gains due to drop in the surface temperature are compensated with increase in the surface area of the insulation. In other words, the energy saving also goes up, but at a slower rate of increase than the cost of the materials and installation.

At a particular point, the total cost, which is the sum of the lost energy and the material cost, reaches a minimum point and it is the optimum thickness required to do insulation. Figure 1 gives idea about the calculate the economic thickness.