Step 1: Understand the cause of eddy current losses.
Eddy currents are loops of electric current induced within conductors by a changing magnetic field, according to Faraday's Law of Induction.
In a transformer, the alternating magnetic flux induces these currents in the iron core. These currents circulate through the core material, dissipating energy as heat ($I^2R$ loss), which is an unwanted energy loss.
Step 2: Analyze the function of a laminated core.
A laminated core is constructed from thin sheets (laminations) of soft iron, insulated from each other by a thin layer of varnish or oxide.
The laminations are arranged parallel to the magnetic flux. The insulation between them dramatically increases the resistance in the path of the circulating eddy currents.
Since the power loss due to eddy currents is proportional to $I^2R$, increasing the resistance ($R$) significantly reduces the magnitude of the induced eddy currents ($I$) and thus reduces the power loss.
Step 3: Evaluate the options.
(A) Winding the coils one over the other improves magnetic coupling but does not affect eddy currents.
(B) Using thick wire reduces copper losses (Joule heating in the windings) but does not affect the core's eddy current losses.
(C) Using a laminated core breaks up the path of the eddy currents, greatly increasing resistance and reducing the current magnitude, thereby effectively reducing eddy current losses. This is the correct method.
(D) Using magnetic material with low hysteresis loss reduces hysteresis losses, not eddy current losses.