To add to the pondering here, in 2009 according to reports at the time, it cost $178 to make the iPhone 3GS.
It has to be far cheaper to make them now. I'd guess it is well under $100. Going by Moore's law, halving the price twice given the 3 years would be under $50.
What if they start selling the 3GS without a contract, for pre-paid type phones. They might be able to sell it for $99 and still make a hefty profit. Update it so it works in China, and they might sell a billion of them.