Concept:
This is an application of
Bayes' Theorem.
Let
\[
C=\text{Machine correctly set up}
\]
\[
I=\text{Machine incorrectly set up}
\]
\[
A=\text{Two acceptable items are produced}
\]
Then
\[
P(C)=0.8,
\qquad
P(I)=0.2
\]
We need to find
\[
P(C|A).
\]
Step 1: Find the probability of producing two acceptable items.
If the setup is correct,
\[
P(A|C)=(0.9)^2=0.81
\]
If the setup is incorrect,
\[
P(A|I)=(0.4)^2=0.16
\]
Step 2: Apply Bayes' theorem.
\[\begin{aligned}
P(C|A)
&=
\frac{P(C)\,P(A|C)}
{P(C)\,P(A|C)+P(I)\,P(A|I)}
\end{aligned}\]
Substituting the values,
\[\begin{aligned}
P(C|A)
&=
\frac{0.8\times0.81}
{0.8\times0.81+0.2\times0.16}
\end{aligned}\]
\[\begin{aligned}
&=
\frac{0.648}
{0.648+0.032}
\end{aligned}\]
\[\begin{aligned}
&=
\frac{0.648}{0.680}
\end{aligned}\]
\[\begin{aligned}
&=
0.95294
\end{aligned}\]
\[\begin{aligned}
&\approx 0.95
\end{aligned}\]
Step 3: Write the final answer.
\[\begin{aligned}
\boxed{0.95}
\end{aligned}\]
Hence, option \(\mathbf{(B)}\) is correct.