# A new meaning of Planck's theory - Profits!!!

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#### Charmed

From Units Sold to Car Dealership Temperature

Dear All:

In the attached, I have continued the analysis of the car dealership problem and show how to derive the notion of car dealership temperature T, following the logic used by both Planck (in 1900) and Einstein (in 1905) when they developed quantum physics. Einstein uses a simplified version of Planck's radiation formula to arrive at the idea that light must be composed of particles having the elementary energy quantum hf. However, it is worth recalling Einstein's exact remarks. Einstein shows that as far as its entropy is concerned, light can be thought of as being made up of particles having an energy hf.

As far as its entropy is concerned. Einstein also shows that the temperature T of light, or electromagnetic radiation, must be given by T = U/S where U is the energy and S the entropy. He imagines light, or electromagnetic radiation to have a certain energy density and a certain entropy density, just like Newton starts with the idea of density when he defines what he means by mass in physics. The total energy is the energy density times the volume enclosed by the light front. The total entropy is the entropy density times the volume. The ratio of energy to entropy is the temperature. Since entropy tends to a maximum, the temperature will tend to a minimum. And, so on.

Now, we can use the same arguments, generalize them and arrive at the idea of temperature, from the units sold by the car dealership. Each unit sold has the attribute of money, which is analogous to energy. The missing notionsof entropy and temperature follow using the arguments of Planck and Einstein.

The graph in Figure 6 (updated Microsoft PowerPoint file) shows how the average price per unit M increases as the temperature T increases. However, we must deal a constant k, which is analogous to the Boltzmann constant, which includes the concept of mass, or moles of a substance. Likewise, there is "mass" in the business world. How does this come about?

To understand this, we must understand how the business world operates. We can think of it like an engine, see Figure 7 in the attached file. IMHO, together with some of the ideas outlined in the earlier posts, this completes the analogy. The idea of a fixed quantum of profits (or costs) can be deduced from these considerations. The law y = hx + c where x is revenues and y is profits is the exact analog of Einstein's photoelectric law. The statement Profits = (Revenues - Costs) is the analogy of the law of conservation of energy, also called the first law of thermodynamics. The idea of temperature T is implied in the second law and formalized via the zeroth law of thermodynamics. These points are also discussed briefly in the appendices to the attached Word document.

Have a happy holiday season and a great new year.

Charmed

#### Attachments

• CovePostPrfit2.doc
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• VJLCovePostPrft3.ppt
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C

#### Charmed

Absolutely Incredible

Dear All:

For those (like Murph095) who have followed this thread, and my other posts on extending Planck-Einstein quantum physics ideas to the business world, here's another example of how it works. This has to do with auto-theft claims frequency.

Here's an extract from the table for Highest claim frequencies, 2001-2003 vehicles

2. Nissan Maxima (2002-03) Claims frequency 17
4. Dodge Stratus/Chrysler Sebring Claims frequency 8.3
5. Dodge Intrepid Claims frequency 7.9

Average Claims frequency 20.2 for all cars 2.5

Remember that the Cadillac Escalade is a very expensive vehicle (\$53,000) and there must be relatively few of these on the road compared to the Dodge Intrepid. The claims frequency per 1000 insured years is the ratio y/x where y is the actual number of claims and x the actual insured-years.
We cannot assume that for each vehicle the insured-years is exactly 1000. The claims frequency is given is based on a conversion (or extrapolation) of the actual insured-years to 1000. Cadillac Escalade EXT had the highest claims frequency of 20.2 while the Dodge Intrepid had the lowest claims frequency of 7.9. How much of this is actually due to the difference in the insured-years?

To account for this obvious difference, I prepared a table of insured-years x and claims y, while keeping the claims frequency (ratio y/x) the same as in the tables given in the article. I get a nice linear relation y = hx + c for x and y. The linear relation is illustrated in Figure 1 of the attached Microsoft PowerPoint file.

I find it absolutely incredible that I was able to find such a linear relation with little effort. Of course, we can "guess", or input, other values for the insured-years and we would then get a scatter (see Figure 2). However, the large variation the claims frequency can still be described by a simple linear relation.

Since, y = hx + c, the claims frequency y/x = h + (c/x). The nonzero c means the ratio y/x will decrease as the number of insured-years x increases. There must be considerably fewer Cadillac Escalades on the road (since they are obviously the most expensive). Hence insured-years x must be smaller for these vehicles compared to the Dodge Intrepid, a considerably less expensive vehicle. The non-zero c is like the work function that Einstein recognized and introduced into quantum physics when he extended Planck’s ideas and applied them light (or electromagnetic radiation). This point and the significance of the work function has been discussed in earlier posts.

This, in essence, is what Planck's quantum theory is all about, as being generalized and extended here. Absolutely incredible! Yes, it is.

The insurance institute's list is one of several most-stolen vehicle lists released each year. In May, Chicago-based CCC Information Services said the 1995 Saturn SL was the nation's most stolen vehicle based on the ratio of thefts to registered vehicles. The insurance institute says that list tends to reflect the most popular vehicles on the road rather than the most likely to be stolen.

Methinks, we are missing something vital in our rush to use simple ratios and percentages (almost mindlessly) in many different situations that we must deal with everyday.

Charmed

#### Attachments

• CoverInsure1.doc
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• CoveInsure1.ppt
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C

#### Charmed

Graphical Illustration of Claims Frequency

Dear All:

I have included an updated file with Figure 3. This was also an attempt to double check the calculations since the perfectly linear trend seemed so incredible.

Graphically speaking, the claims frequency for the Cadillac Escalade EXT is the slope of the dashed straight line A. This slope is higher than the slope of the dashed straight line B, the claims frequency for the Dodge Intrepid.

2. Nissan Maxima (2002-03) Claims frequency 17
4. Dodge Stratus/Chrysler Sebring Claims frequency 8.3
5. Dodge Intrepid Claims frequency 7.9

Average Claims frequency 20.2 for all cars 2.5

I have also included a table here which illustrates the calculations. If the insured-years is exactly 1000, the claims for the Dodge Intrepid would be 7.9 and for the Cadillac Escalade it would be 20.2. But, if we assume that there are fewer Cadillac Escalades on the road, with just 122 insured-years, the claims would drop to just 2.46 for the Cadillac Escalade. Likewise, for the other three vehicles.

The actual number of insured-years x is an important piece of data as is the actual number of claims y. The insurance institute study only reports the ratio y/x without providing the individual values of x and y.

Charmed

#### Attachments

• CoveInsure1.ppt
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