The correct answer is: C. Some of the energy is used to combat friction, and thus is transformed from mechanical energy to heat.
According to the law of energy conservation, energy can not be created or destroyed. One type of energy is simply transformed into another type of energy. When the power output is smaller than the power input, then some of the energy is put into the moving parts of the machine. The energy taken by the machine normally involves friction within the machine, and the mechanical energy of the machine is transformed into heat energy within the machine. If we touch the parts of the machine after it has been working for a while, we can normally feel parts that are hotter because mechanical energy has been transformed into heat energy through friction.