It is common for supermarkets to carry both generic (store-label) and brand-name

(producer-label) varieties of sugar and other products. Many consumers view these

products as perfect substitutes, meaning that consumers are always willing to substitute

a constant proportion of the store brand for the producer brand. Consider a consumer

who is always willing to substitute four pounds of a generic store-brand sugar for two

pounds of a brand-name sugar. Do these preferences exhibit a diminishing marginal

rate of substitution between store-brand and producer-brand sugar? Assume that this

consumer has $24 of income to spend on sugar, and the price of store-brand sugar is

$1 per pound and the price of producer-brand sugar is $3 per pound. How much of each

type of sugar will be purchased? How would your answer change if the price of storebrand

sugar was $2 per pound and the price of producer-brand sugar was $3 per pound?