ANS:B - smaller, farther off the staff is held

Option B is totally right.

Staff intercept is the vertical angle between the upper stadia or lower stadia and the Horizontal line.

What is upper stadia and lower stadia?

Upper stadia is the line reading on the upper side of staff from the horizontal line.
Whereas lower stadia is the lower reading line from the horizontal line.
So, when the staff is held farther, the angle decrease, thus smaller will be the staff intercept.

Similarly, when staff is held nearer staff intercept will be greater.