This paper presents a methodology for optimal sizing and placement of distributed generation (DG) in electric power systems. The candidate buses for DG placement are identified on the bases of locational marginal prices. The problem of optimal placement is formulated for two different objectives, namely, social welfare maximization and profit maximization (this last one from the point of view of the DG owner). Several cost characteristics are assumed for DG units. For each DG unit an optimal placement and size is identified for each of the objectives. The proposed methodology is tested on the IEEE 14 bus test system .