Consider the given figure of state table for a sequential machine. The number…

For a Mealy machine, two states are equivalent if, for every input, they produce the same output and move to equivalent next states.

From the table:
A: on input 0 -> D/0, on input 1 -> B/1
B: on input 0 -> A/0, on input 1 -> C/1
C: on input 0 -> A/0, on input 1 -> B/1
D: on input 0 -> A/1, on input 1 -> C/1

First group states by their output behavior. States A, B, and C have output pattern (0, 1), while D has output pattern (1, 1). Hence D is separate.

Now refine the class {A, B, C}. On input 0, A goes to D, but B and C both go to A. Since D is not equivalent to A, state A separates from B and C. States B and C remain equivalent: on input 0 both go to A, and on input 1 they go to each other within the same equivalence class {B, C}.

Thus the final equivalence classes are {A}, {B, C}, and {D}. Therefore, the minimized machine has 3 states.