Final answer:
The correct answer is 'highly developed' because 'highly' properly modifies the adjective 'developed'. This phrase is used to describe the exceptional olfactory capabilities of dogs, particularly bloodhounds, which possess a greater number of olfactory receptors.
Step-by-step explanation:
The correct compound word for the sentence, "Dogs have a sense of smell," is B. highly developed. This is because 'highly' is an adverb that modifies the adjective 'developed', creating the compound adjective which describes the phrase 'sense of smell.' In the context of dogs, especially breeds like bloodhounds, they are known for having a highly developed sense of smell due to a greater number of olfactory receptors and a variation in their olfactory epithelia, compared to other animals and humans. Bloodhounds, for example, were specifically bred to enhance these traits, leading to more olfactory bulbs and larger olfactory epithelia, which provides them with an exceptional ability to track scents.