What condition could cause this behavior?

Well, hard to say how picky one has to be when analyzing the wording used by VMware. It could be deliberately mean as noted by Pablo, but it could also be the case of no malicious intent where things can be taken at their face value. For example, if you look at similar Question 257, the indicated correct answer “DRS is set to Manual Automation” does not make sense either purely from the semantics perspective as there’s no such a setting as “Manual Automation” (let alone the nonsense of “automation” that is “manual”).
Now, as per vSphere Client, DPM Threshold set to most conservative level means (quote) “vCenter will apply power on recommendations produced to meet vSphere HA requirements or user-specified capacity requirements”. Note – NO POWER-OFF at all, only power-on actions at this DPM level ! Power-off recommendations are made only at the next level – Priority 2 (quote) “…if host resource utilization becomes __extremely__ low…”.

Also important to remember that DMP and DRS have somewhat opposite goals: DMP – to run workload on as few hosts as possible, while DRS – distribute workload as evenly as possible.
vMotion is the actual vehicle for VM migrations for both DRS and DMP. In other words, DRS is not a decision maker when it comes to DPM.
As such, the answer here is almost certainly C – DMP Threshold at its most conservative setting.
And, while not necessarily serving as a proof, on the VCP550 exam I passed the other day with the score of 473 out of 500 (to great extent thanks to this wonderful Web site !) my choice was ‘C’.