The economic notion is called marginal profitability. Better sales are a good thing if the marginal profit is positive, ie, each extra unit sold still increases the overall profit, so in your example it's still profitable if the new model brings $1.5 profit per unit, and you stop only when the marginal profit per unit turns negative.
In tech the model is often misleading, since the large investments to improve the product are not just a question of current profitability, but an existential need. Your existing product line is rapidly becoming obsolete and even if it's profitable today, it won't be for too long. History is full of cautionary tales of companies that hamstrung innovation to not compete against their cash cows, only to be slaughtered by their competition next sales season. One more to the pile.
In tech the model is often misleading, since the large investments to improve the product are not just a question of current profitability, but an existential need. Your existing product line is rapidly becoming obsolete and even if it's profitable today, it won't be for too long. History is full of cautionary tales of companies that hamstrung innovation to not compete against their cash cows, only to be slaughtered by their competition next sales season. One more to the pile.