When person A said, "I'll drink tea from this tin mug" it means that he had already found the mug.
Hence, person B must have asked about the mug in the past tense.
Option B - 'Where do you find it?' This is used in simple present tense. It means where do you often/always find this mug. Here, the mug is already found by person A, so we need the question in the past tense and not in the present tense. Thus option B is incorrect.
Option C - 'Where did you found it?' An auxiliary and a verb in the past form can't be used together in a sentence. When an auxiliary is in the past form (did), the verb should be in its original form (find). Thus option C is incorrect.
Option D - 'Where were you found it?' 'Were' is used to explain the state of being and 'did' is used to explain the tense of an action. As the question represents the action of finding the mug, we can't use 'were'. Thus option D is incorrect.
Option E - As the action has already been done, we can't use 'are' as it represents the present tense. Thus option E is incorrect.
Option A - 'Where did you find it?' is correct, as 'did' represents action and since it represents past tense too, we will use the verb in its original form 'find'. Thus option A is the correct answer.
"Where did you find it?"