A: that Nancy actually does favor the tuition increase
Correct.
The fundamental attribution error is overestimating dispositional
causes for a behavior, and underestimating situational causes. In
this situation, the professor is underestimating the situational cause
for the behavior (she was assigned to write on this topic) and overestimating
the dispositional causes (she really favors tuition increases). In
this example, the professor commits this error even though he was the one
who assigned her the topic (he was probably not a social psychology professor
though). This illustrates how pervasive the fundamental attribution
error is (surely even social psychologists have committed it).