Suppose there are two jobs in the economy: lawyers and fisherman. To be a lawyer, one must obtain a law degree. Firms set wages to equal the average productivity of those employed in the industry.

(a) Suppose that the average productivity of those employed as lawyers is $100 per hour, thus the wage for lawyers is $100/hour. On the other hand, the average productivity of fisherman is $50 per hour, thus the wage for fisherman is $50/hour. Suppose all lawyers obtained a law degree and fisherman did not. Compute an estimated "return to a law degree" naively by comparing the wages of those that obtained a degree and those that did not.

(b) Now suppose that if a lawyer had instead decided not to attend law school and became fisherman, his productivity as a fisherman would be $40 per hour. What is the actual return to a law degree for those that chose to be lawyers?

(c) Now suppose that if a fisherman went to law school, his productivity would be $75/hour. What is the actual return to a law degree for those that chose to be fisherman?

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