There are different methods of pricing. One method is cost based pricing. The other methods are market based pricing such as competitor pricing, penetration pricing and psychological pricing. The given question is based on cost-based pricing which involves adding a mark-up. In the given the case mark up is $3.5 ($8.75 x 40%). Hence the selling price of the detergent would be $12.25 ($8.75+$3.5)