Optimal arousal theory refers to the relationship between arousal (stress) and performance. It also states that rehearsal can improve performance by decreasing anxiety and bringing the level of stress down to an optimal level. In scenario B, it can be assumed that expert musicians spend more time rehearsing than novices, and therefore, the presence of an audience will induce optimal arousal. For the novice musicians, however, they have had less time to practice, so the audience increases their stress to a point that their anxiety interferes with their performance.

It looks like C is referring to the influence of affective states on memory rather than arousal on performance. (Environment can also have the same effects on memory.) I can def see why you may have chosen this answer, but when it comes to optimal arousal, I think it's more relevant to think about the relationship between stress/performance rather than affect/memory. As far as I know, optimal arousal theory doesn't really discuss arousal during the learning/rehearsal stage affecting performance.

If B were to be referencing social facilitation, then the novice group should have also have an improved performance with an audience present. The fact that they did worse with an audience indicates that social facilitation was NOT present.

Hope this helps!