His is just a matter of converting 5% into a decimal =5/100 = .05. Take this value and multiply it by $350,000. The result is the amount of commission that Tamara made (.05)*350,000=$17,500 To make sure that this is correct we know that 10% of 350,000 is $35,000. Half of this value is equal to 5% and that is $17,500.
Since its telling you that x is the number of years and the question is "How much does the cost of milk increase EVERY YEAR" then you can conclude that the cost is increasing by 0.25 each year