The power output of the heating unit is given by the formula:
\[
P = \frac{V^2}{R},
\]
where:
- \( P \) is the power output,
- \( V \) is the voltage across the heating unit,
- \( R \) is the resistance of the heating unit.
Step 1: Calculate the resistance of the heating unit
For the heating unit designed to operate at 500 W on a 400 V line, we use the formula to find the resistance:
\[
500 = \frac{400^2}{R}.
\]
Solving for \( R \):
\[
R = \frac{400^2}{500} = \frac{160000}{500} = 320 \, \Omega.
\]
Step 2: Calculate the power output at the reduced voltage
Now, if the voltage drops to 160 V, the new power output is:
\[
P' = \frac{160^2}{R} = \frac{160^2}{320}.
\]
Substituting the value of \( R \):
\[
P' = \frac{25600}{320} = 80 \, \text{W}.
\]
Step 3: Calculate the percentage drop in power
The percentage drop in power is given by:
\[
\text{Percentage drop} = \frac{500 - 80}{500} \times 100 = \frac{420}{500} \times 100 = 84%.
\]
Thus, the percentage drop in heat output is 84%, and the correct answer is option (C).