In using the critical fractile criterion P(d

Question

In using the critical fractile criterion P(d < x) = Cᵤ/(Cᵤ + Cₒ) for overbooking, the 'd' refers to the ________.
A) cost of overestimating demand
B) cost of underestimating demand
C) number of rooms overbooked
D) number of no-shows based on past experience

Quizplus · Accepted Answer

In using the critical fractile criterion, the 'd' refers to the number of no-shows based on past experience. This criterion helps in determining the optimal number of rooms to overbook so that the expected revenue from those who do show up covers the cost of compensating those who are denied accommodation due to overbooking. The critical fractile criterion formula calculates the probability of having d or fewer no-shows based on historical data, and the value of x is chosen such that this probability equals Cᵤ/(Cᵤ + Cₒ), where Cᵤ is the cost of underestimating demand and Cₒ is the cost of overestimating demand.

In Using the Critical Fractile Criterion P(d < X) =