And it happens all the time. But no need to brand it especially, and kill the lucrative recycled lines by associating recycled with el-cheapo...

This doesn't forbid using recycled materials for cheaps products, you just don't advertise it.

In an economic system, a product will be sold at the highest price possible, so if advertising it as using recycled materials nets you higher profit, than you will do that. So even if non-recycled is more expensive to produce, it will be cheaper if people are not willing to pay as much for it.

There a lot of cases of the exact same product being sold at different price tags under different names/brands.

In an economic system, a product tries to be sold at the highest price possible _for each potential buyer_, not as a whole.

I should have added “all else being equal”. In context of the question I was trying to answer this still holds.