Step 1: Setup B has hot water. Water evaporates into warm water vapour, rises, and touches the cooler inner surface of the lid. It loses heat and condenses into droplets on the inside. Step 2: Setup A has cold water. Warm water vapour from the surrounding air touches the cold outer surface of the beaker, loses heat, and condenses on the outside. Step 3: The question asks where droplets form; the inner lid of Setup B is correct.