"Six months ago, in an experiment aimed at boosting worker productivity, Company Z started providing free gourmet lunches to its employees. The Company hoped that these office lunches would encourage employees to remain in the building during lunch-hour and motivate employees to work harder throughout the day. A survey found that soon after the lunch program was implemented, the average number of hours worked by most Company Z employees increased dramatically. During this same period, the Company's profits also increased substantially. Thus, it is safe to say that the lunch program was a huge success and that Company Z should make the program permanent."

In the passage above, company Z experimented to improve their employee productivity by offering free lunches and their observation is that this indeed helped them to achieve the goal. I believe there are various assumptions made by the COmpany Z in calculating the outcome of the experiment.
Firstly, there is no detailed information coming out of the passage that supports that increase in profitability is because of increase in working hours of the employees. There can be various other factors that can lead to increase in Sales or reduction in cost of the company that can cause increase in profits. For example, the output coming from the employee may still be the same but due to better marketing done by sales team, Company Z has experienced rise in Sales.
Secondly, lunch time also taken by employees as a time to relax from stereo type work and help them do some recreational activity. By encouraging employees to stay in the building for a longer time, adds to boredome in work which can in a way result in lowering productivity of employees. the passage does not state how exactly the employees engaged themselves in lunch hours outside building that impacted their productivity.
Thirdly, it is stated that with free lunches, the employees worked higher average number of hours. It is not stated whether this increased working hours resulted in greater output or not. It might be that the employees might be taking longer to complete the same amount of work during the experiement period than they used to earlier. This is not helping company Z anyway in achieving its objective.
As an example, I observed a similar practice in one company HMT Automobiles wherein HMT provided a highly subsidised lunch to its employees to motivate them to work and to retain its employees. At the same time, company failed to provide employees competitive environment and better career prospects. This resulted not only losses to company but also it also experienced high attrition rate of its employees.
Hence, it puts strong doubts on effectiveness of the experiment done by the company. More detailed study and facts need to be reported to really understand the success of the Company Z program.