In the 1990s, IBM added a chip to their LaserPrinter line and sold it as the LaserPrinter E. The sole function of the chip was to slow the speed of the LaserPrinter by 50%. Why would IBM incur an additional cost to reduce the functionality of their product?

Your response should apply economic principles (e.g., comparative advantage, opportunity cost, cost-benefit principle) to answering one of the above questions. Your answer does not need to be correct in that it fully explains the question. Instead focus on creating an intelligent hypothesis that could potentially be tested and refined. Also avoid using technical jargon for the sake of being technical. Your response should be able to be read and understood by an intelligent individual with no training in economics.

Each assignment will also highlight a different tool in the economist's toolkit. You do not need to specifically reference or use this tool in your submission, but it may be helpful to think about how the tool relates to the puzzle. This assignment's economic tool: Price Discrimination

Throughout the course, we have assumed that everyone in a market pays one price. In practice, firms have a number of tools to charge consumers different prices for the same good or service. Formally, this is referred to as price discrimination and there are three different types:

First Degree Price Discrimination: A firm charges individuals a price equal to exactly what they are willing to pay (a theoretical benchmark in a similar way as the notion of perfect competition). o Examples (approximations): Haggling at auto dealerships, auctions on eBay

Second Degree Price Discrimination: A firm charges individuals different prices based on unobservable (to the firm) characteristics. In other words, consumers self-select into paying different prices based on their willingness to pay, which is unobservable to the firm. o Examples: Coupons at grocery stores, discounts for buying in bulk, different prices for airline tickets based on time to the flight

Third Degree Price Discrimination: A firm charges individuals different prices based on observable (to the firm) characteristics. In other words, if certain demographics have different average willingness to pay and the firm can observe these demographics, they may be able to charge different groups different prices.

o Examples: Senior citizen and students discounts on movie tickets, different cover charges for men and women at bars, military discounts