According to 'Commodore: The Final Years' (whole trilogy highly recommended, BTW), page 129, 'Jeff Porter realized it would not be possible to significantly cost reduce the Amiga 500 to get it into the $250 retail price range'.
This is really important. All the flailing around Commodore did in their final years, designing a bunch of different machines that missed the point. I used to wonder why it didn't occur to them that they needed to focus on cost-reducing the A500, get back to selling a good computer at a surprisingly low price, that was always their core strength. Well according to the above, it did occur to them, but they decided they would not be able to do it. And everything else the company did in the last few years of its life, was the rebound from that. (Okay, I exaggerate slightly. Some of their higher-end products would have been important anyway. But nothing else had the potential to sell millions of computers.)
Why was such cost-reduction not possible? Two possibilities come to mind:
The late eighties was the time of the RAM famine; half a megabyte was significantly costly all by itself. (But then why did the verdict not change when the famine ended?)
There were a lot of chips on the board. They needed to be fused into fewer chips. But Commodore Semiconductor Group (nee MOS Technology) had been starved of capital to keep up in process technology, and could not make the larger chips that would be needed.
Is there something else I am missing?