The correct answer is B) It will increase. When a turbo-generator with a governor speed droop setting of 3% has the load removed, the output frequency will increase. This is because the governor speed droop setting is a mechanism that reduces the generator's output frequency as the load increases, in order to maintain stability. With the load removed, the lack of this load-induced frequency drop allows the output frequency to rise above the nominal value. The other options are incorrect. Option A is incorrect because the output frequency will not become variable, but will instead increase to a new stable value. Option C is incorrect because the frequency will not decrease by 3%, but will instead increase. Option D is incorrect because the output frequency will not remain unchanged when the load is removed.