But layoffs only occur if firms can produce output at a lower cost by using AI rather than humans. Those humans go and work elsewhere and total output increases.

Try LLMing this (it efficiently interrogates both your assumptions in a single prompt):

> in standard economic thinking, is it possible for a job to be made redundant due to improvements in technology and that employee to be reassigned elsewhere, and for either long run supply to go down or long run prices to go up?

Note: there will always be edge cases, for example if I owned a business, I could theoretically replace someone with AI, and increase my prices, which would contradict the idea that greater efficiency always results in more supply and lower prices, but overall in the long-run that won't happen.