A local bakery faces a dilemma: they can produce 100 loaves of bread at a cost of $1 each or 80 pastries at a cost of $1.50 each. The bakery owner learns about allocative efficiency and wants to maximize their profits while also considering customer preferences. If the demand for bread exceeds that for pastries, what should the bakery focus on producing to achieve allocative efficiency?

To achieve allocative efficiency, the bakery should focus on producing the item that customers want more, which is bread in this case. Since the demand for bread exceeds that for pastries, producing more bread will satisfy more customers and generate higher profits. The cost to produce bread is lower per unit compared to pastries, making it a more profitable choice when demand is high. For example, if the bakery produces 100 loaves of bread, they can sell them all, while producing only 80 pastries may leave some unsold. By prioritizing bread, the bakery aligns its production with what customers prefer, maximizing both its efficiency and profits.