One problem I see with that analysis is this part:
After all, workers are producing 20% more, so the amount of profit from hiring an extra worker increases by 20%.
If demand isn’t being met, or if it’s elastic, then increasing your production = increasing your profits. But if demand for your product is not elastic, increasing your production will just leave you with unsold product and decrease your profits; you’d make more money by using those new machines to reduce your work force.
One problem I see with that analysis is this part:
If demand isn’t being met, or if it’s elastic, then increasing your production = increasing your profits. But if demand for your product is not elastic, increasing your production will just leave you with unsold product and decrease your profits; you’d make more money by using those new machines to reduce your work force.