The correct choice is (b) Penalty formulation

Easy explanation: There are two different finite element models of momentum and continuity equations. The first one is a natural and direct formulation of momentum and continuity equations. The second model, penalty formulation, is based on the interpretation that the continuity equation is a new relationship among the velocity components, and it eliminates the pressure term leading to a constraint on the velocity components. The constraint is satisfied in a least-squares (i.e., approximate) sense.