Energy can be converted from one form to another.
The question is incomplete as the system is not shown but I will try to help you the much I can. First of all, this question deals with the idea of energy transformation. We must note that energy is neither created nor destroyed but can be transformed from one form to another.
The system ought to have been composed of many systems in which energy transformations occur ad each of these must obey the law stated above. These energy transformation are not 100% efficient as some energy is lost as heat along the way
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