Step 1: Concept Efficiency is the ratio of useful output to the total input.
Step 2: Meaning Indicated Horsepower (IHP) is the total power produced inside the cylinder, and Brake Horsepower (BHP) is the actual power available at the crankshaft.
Step 3: Analysis BHP is always less than IHP due to frictional losses within the engine ($FHP = IHP - BHP$). Mechanical efficiency measures how much of the generated power is successfully transmitted to the output.
Step 4: Conclusion Mechanical Efficiency = $\frac{BHP}{IHP} \times 100$.
Final Answer: (A)