From the law of conservation of energy, the energy can neither be created nor be destroyed. But it can be converted from one form to another.
At position 3, the ball will have maximum kinetic energy and at 1 and 3 the ball has the energy only in the form of gravitational potential energy.
The potential energy and kinetic energy of the ball will be lost due to the friction between the ball and the track. This lost energy will be converted into thermal energy. The friction will act on the ball throughout its motion on the track.
Thus, the thermal energy increases the entire time the ball rolls on the track. And both gravitational potential energy and kinetic energy are converted into thermal energy.
Therefore, the correct answer is option C.