Why are the small steps necessary? Axiom 1 is sufficient to add an arbitrarily large population of minimally-happy people. If you think that this is repugnant, then you should not assume Axiom 1.

(You then need Axiom 2 to get from the state of "tiny-but-happy A, plus huge and minimally happy B" to a state of uniform minimal happiness. But I don't think that changes much, except that if you're imagining yourself as living in A you might selfishly prefer to remain very happy.)

I apologize for engaging with the example rather than the thesis.