Let's make sure we're on the same page in terms of our conversational understanding of the passage, before we deal with their terribly worded answer choices.
The "recent criticism" basically says that Jewett was writing domestic novels (of the type popular in the early/mid 1800's).
Our author thinks these critics are wrong. Even though there are some similarities to domestic novels (as our author enumerates in the 1st paragraph), there are very important differences, which the author ultimately attributes to the fact that by the time Jewett was writing in the late 1800's, the concept of what a novel was supposed to be/accomplish had changed.
(C) is correct because everything in it is accurate. The passage does admit that the critics' claim has some merit (lines 4-7), but the rest of the passage goes on to support that the critics' claim is wrong.
(D) is incorrect because it has some inaccurate phrases.
It says that the critics' view "relies on a currently dominant literary aesthetic".
Where in the passage do we hear about a "
currently dominant literary aesthetic"?
What we do hear about is that one dominant literary aesthetic in the early 1800's was that of the domestic novel "instructive, religious, family-based", and then we hear about a transition in the late 1800's into a different literary aesthetic.
But we never speak of a
current literary aesthetic.
Also, the phrase "too narrow a view of the proper goals of fiction" seems a bit loaded and opinionated.
The line reference you cited talks about "different conceptions of the nature and purpose of fiction". It never says that one of those conceptions is "too narrow" or "has improper goals".
The passage is just saying that the goals of the domestic novel were different from those of the late 1800's novel, and suggesting that critics' view Jewett's work from the latter perspective.
Hope this helps.