If 32 would be against better judgement then why even offer 16?
It's called perceived value.
Scenario 1: They offer 32, 64, and 128. Most buyers who bought 64 last round would mentally justify 32 in their heads by saying things like "I'll just use the cloud or hook it up to my laptop and clean up photos". Even though they won't and they'll end up frustrated. Apple's consumer satisfaction rating drops, and they are notoriously protective of that.
Scenario 2: They offer 64 and 128 only. Apple will be hammered for "raising prices" even though really they just eliminated the lowest tier. Consumer sat drops.
Scenario 3: They offer 16, 64, 128. Perceived value says they'll see 64 as a value and 16s can be primarily used by enterprise consumers or those who only use it as a phone/message device. Consumer sat stays high.
Now pick the optimal one.