Introduction:

Agricultural is the most important part of the Pakistan’s economy .it is contributing almost
23.4%in the economy of Pakistan. Agricultural area is mainly focus on the nourishment of the
society, provision of food and maximization of the production. It provides us with our livelihood
as up to 70percent people of Pakistan used to live in rural areas and about 45 percent of country’s
labor force are engaged with the agricultural area of Pakistan. The basic role of agriculture sector
in Pakistan is to minimize the poverty and makes new opportunities of employment.

Agriculture is a very essential part for the Pakistan’s economy as like many other developing
countries of the world and the most important part of this sector is wheat. According to the
economic survey of Pakistan the contribution of wheat in Pakistan’s agricultural sector is 10.3
percent and to its GDP is2.2percent.

Unfortunately, Pakistan is based on the unprogressive method for production and self-support
system which is main cause for the less productivity. Most of the developed countries are using
advanced and up to date method for the maximum production. When production is low the
farmer’s profit is less consequently, farmer will not be able to buy more seeds of higher quality,
farmers are also not being able to use higher quality pesticides neither they can use up to date
technology. Resultantly, the shortage of resources will affect the coming production and this
cycle continued.

Pakistan irrigation system is one of largest irrigation system in the world. Pakistan irrigation
system is extended in the whole country .irrigation system is essential for the fertile and
maintainable crop production. About three fourth of the land is being cultivated through the
country’s largest canal system.Canal system is the substitute of rainfall shortage..

Government of Pakistan is trying its level best to upgrade the agricultural sector of Pakistan by
maximizing the level of production through long lasting irrigation system by protecting the land
from water logging and salinity.

About 80percent of the total farmers (in words are approximately four million) and nearly
40percent of the total yield area which contributes to the one fourth of total crop sector.
Economic theory

Perfectly competitive market are those markets in which all producer produce almost the same
product and each producer is so small with regard to the whole industry and that his production
would not have any effect on the price given by the market.
There are three basic assumption of perfectly competitive firm.
1. The first assumption of perfectly competitive market is called price takers as products
are identical and each firm has a significant number of competitors in the markets so they
have to take the price as given.
2. Secondly, the product is homogeneous which means that in a competitive market the
individuals produce the same product or nearly identical so no individual can higher the
price of its products over the other individual firms without being lost all of his business.
Mostly, agrarian products are identical because quality of the goods is almost the same
among all the area of the given sector. Economist refers these identical goods as
commodities. On the contrary, when products are not identical each firm has a chance to
increase the prices of its product over the other producer in the market without being lost
his business.
3. Lastly, the assumption free entry and exit comes which implies that there are no unique
costs that make hard for any firm either to enter or exit from the market. For new comers
it means that if they see a profit opportunity it can enter the market and when a existed
firm started losing money it can freely exit from the market. Consequently a individual
contracts the work and buys crude materials as required for its production, and it can
discharge or move these variables of producing output in the event that it needs to close
down the business.
On the off chance that these three presumptions of fully competition held, demand and
supply curves of the market can be helpful for examining the market cost. In certain business
sectors these presumptions are probably not going to hold precisely that doesn't imply that
the model isn't valuable. Moreover, if any firm is failed to hold these assumptions that is not
a perfectly competitive firm.
Now, we will look at the profitability maximization and production decision of any individual.
Either perfectly competitive or not because profit is the difference of revenue and cost of the
firm.
Finding the firm’s output level having profitability maximization means examine the gross return
of the individual in the market. Let suppose that p be the product price and q is the output of the
firm and gross return is equal to the price *quantity of units sold, mathematically, R=p*q. For
maximization of the profit firm opt that output for which the difference of net return and cost of
production is greatest. The slope of the net return curve is called marginal revenue which is
the change in the revenue due to 1 unit change in the output then we’ve another term namely
marginal cost which is the change of the cost of production due to a unit increment in the output
produced. Then we’ve a profit maximizing rule which is MC=MR.
As profit is
PROFIT = REVENUE(R) – COST(C)
Change in profit = MR-MC=0
So, MR=MC
Then we’ve demand curve faced by a competitive firm and industry.

In graph (A) the individual competitive firm faces a line parallel to x-axis because the firm is a
price taker and it cannot change the price but it can increase the output which resultantly
increases in the revenue of the firm only and it is perfectly elastic.
Average and marginal revenue and its price are equal along this demand curve.
MR=MC=P
In graph (B) the industry faces a demand curve which is downward slopping.
Note that the Q and D is the output and Demand representative for the industry and q and d is the
representation of the firm’s output and demand in the graph A&B respectively.
Now, remember that for selecting output in the short term the firm should fixed its capital and
chooses its (labor and material) variable inputs. Thus the rule for the output is if a firm is
producing any products it should only be produce at a level where marginal revenue & marginal
cost are equal.

Objective:.
Our objective is to examine the profitability maximization of local wheat firm in the short Run.

Literature Review:

 According to the Pakistan economic survey during 2017-18 wheat crops was cultivated
on area of 8734 thousands hectares which shows a decrease of 2.6percent compared to
the previous year 2016-17 in which the cultivation was 8972 thousand hectares. If we
look at the other side same is case is with the production which is being declining for the
past few years. The recorded data of Pakistan bureau of statistics shows that there is
continuously declining over the past few years i.e. During 2013-14 the production was
25979and in the year of 2017-18 (million tons) the recorded production was
25492(million tons).The reasons for the declining in production is due to the sustained
season of crushing sugarcane, severe water shortage, and climate changes. [CITATION
GoPgov \l 1033 ].
 According to (Mehmood, 2012) a study was conducted on the same topic in Dera Ismail
khan by him and his team consisted of total 4 people. In the given study they state that
survey technique was used and 11 villages was surveyed which were randomly picked
among the top wheat producers in the said district. According to them 50 respondent
were interviewed personally and data was collected. The interview included various
questions which includes land holding, total area and the area which is under cultivation
of wheat, at the time of the surveying, variety of inputs used etc. In the collected data the
cost and the gross return were included and these were analyzed later in the study. The
farm budgeting technique was applied for estimation of cost, gross return and the
profitability. The writer said in their report that their main focus was on the various inputs
used that effects on the enhancement of their cultivation and profitability, their
suggestions, and the help they needed from the authorities.
The analyzation of the collected data shows that per acre average cost were 24716.32.
Likewise, per acre Average production of wheat was as 1618.40kg.
Resultantly, the revenue was 45315.39 per acre whereas the Profit from wheat production
was 20599.07 per acre.
 The writer concluded that the price and output has a positive influence on the
wheat profitability and cost has negatively affected the profitability.

 Numerous studies have been conducted in Pakistan as well as different other

countries to highlight the effects of wheat production in absence and presence of
canal irrigation. Researches were conducted to show how the effects vary. First
one to initiate was Kumar at al (1992) has employed the method of Divisia-
tornqvist index for different states in India include Uttar Pradesh, Haryana and
Punjab. A deduction was made using micro level data that the wheat production
was increased due to canal irrigation. TFP results also suggest the involvement of
technological advancement in irrigation sector has resulted in input and output
index. Moreover, TFP growth rates in Indian territories, during the period, were
much effective and considerable than the TFP growth rates not only in Pakistan
but in US also.
 Beryl and Derek (1994) also investigated various crop productions in Pakistan. It
was found out that the crop production enjoyed improvement after canal
irrigation was used. The rabi crop trebled and kharif crop increased more than
double between 1960-61 and 1990-91, consequently after the water supply
doubled.

 Khan et al (1996) used the regression model to accentuate the factors that are
significant at yielding high or low level crop, especially wheat and cotton crops.
Hence, a deduction was made that water, capital and land are important for
yielding good crop production and was the main reason behind low crop
production in Cholistan.