b) Create a Custom Action Condition where Target Action=Quote, Field=Profile_ID__c, Operator=equals, Filter Value=[SF ID of Profile Y]

There you go, login as each user and click Edit Lines then Add Product... And they'll only see what's been filtered!

** posting the rest of solution below here, as it was cut off below ** (and my 1/2 star rating is for the INCORRECT answer D!)

Wow, this is a tricky one... but yes, ** B ** is 100% correct! The answer is missing a lots of critical details, but yes essentially it's done through a combination of 2 hidden default Search Filters, 2 Custom Actions, 2 Custom Action Conditions, and 1 custom formula field. Tested and verified!!

Apparently the Target Object field on CAC doesn't work on any object other than Product or Quote (as mentioned here: https://trailhead.salesforce.com/trailblazer-community/feed/0D5KX00000KCjgf0AD -- although I can't find this documented anywhere, but I verified in testing it ignores the filter if you try to add the User object!). So the trick is to use a formula field to get around this limitation.

I never came across CACs in all my CPQ studying and this took me a few hours to figure out... This should be worth 10 points on the CPQ exam!

1) In Setup on Quote, create a text formula field to store the User's profile name or ID (e.g. Profile_ID__c = $User.ProfileId).

2) Go to the Add Products custom action and uncheck "Active" and "Default" to disable/hide it.

3) Create 2 new "Add Product" Custom Actions, with admin use only names such as "Add Products (A)" and "Add Products (B)" to distinguish them apart. For both, set to Active, check Default, set Page=Quote Line Editor, Location=Quote/Group, and Action=Add Products. You can also use the default "Add Products" as the label for both, since the desired action is to make the filtering seamless (invisible) to end user. Note, only one will be displayed at a time based on the additional steps below.

4) On Custom Action 1's related list:
a) Create a Search Filter (e.g. Product Family equals A) and check Hidden. <-- THIS IS THE EXAM QUESTON ANSWER
b) Create a Custom Action Condition where Target Action=Quote, Field=Profile_ID__c, Operator=equals, Filter Value=[SF ID of Profile X]

5) On Custom Action 2's related list:
a) Create a Search Filter (e.g. Product Family equals B) and check Hidden. <-- THIS IS THE EXAM QUESTON A...

B is not possible, since it's not possible to create a filter based on current user profile

Should this be B = Create a Hidden Filter in Product Selection based on Profile.