The figure below depicts the labor market model. Suppose the average product of labor increases. What does this model predict will happen as a result, assuming the markup stays the same?

The equilibrium real wage falls.

The price-setting curve shifts up.

The wage setting curve shifts down.

The level of unemployment rises.

Labour supply Real wage Average product of labour, X X Price-setting curve Wage-setting curve No work done: wage is too low for adequate effort 0 Employed Unemployed Employment, N