Step 1: Recall the nozzle expansion conditions.
For a rocket nozzle,
• Over-expanded nozzle: \(P_eP_b\)
where
\[
P_e=\text{exit pressure},\qquad
P_b=\text{back pressure}.
\]
Step 2: Determine the effect of increasing altitude.
As the rocket ascends,
\[
P_b
\]
continuously decreases while the nozzle geometry remains fixed.
Thus,
\[
\boxed{
\text{Over-expanded}
\rightarrow
\text{Perfectly expanded}
\rightarrow
\text{Under-expanded}.
}
\]
Therefore,
\[
\boxed{\text{Perfectly expanded, then under-expanded as back pressure drops}}
\]
is the correct answer.
Thus,
\[
\boxed{(B)}
\]
is the correct answer.