C

Step 1: Understand the setup of the problem:
- The object KP is at a distance 'a' = 5 cm from the screen S.
- The distance 'b' = 5 cm separates the screen S from the mirror.
- Therefore, the total distance from the object to the mirror (D) is
$$ D = a + b = 5 ext{ cm} + 5 ext{ cm} = 10 ext{ cm} $$
Step 2: Use the mirror formula for a convex mirror:
$$ \frac{1}{f} = \frac{1}{v} + \frac{1}{u} $$
For a convex mirror, the focal length (f) is positive and is given as
$$ f = \frac{R}{2} $$
where R is the radius of curvature. Since we need the maximum possible dimensions for the object to be visible, the diameter of the mirror 'd' = 10 cm gives us the radius:
$$ R = d = 10 ext{ cm} $$
Thus,
$$ f = 5 ext{ cm} $$
Step 3: Substitute the values in the mirror formula:
- Let 'u' be the distance of the object from the mirror, which is negative (u = -10 cm).
- Substitute and rearrange for v (image distance):
$$ \frac{1}{5} = \frac{1}{v} - \frac{1}{10} $$
Combining gives:
$$ \frac{1}{v} = \frac{2 - 1}{10} = \frac{1}{10} $$
Therefore,
$$ v = 10 ext{ cm} $$
Step 4: Using the magnification formula for mirrors:
$$ m = -\frac{v}{u} \text{ and } m = \frac{h'}{h} $$
Here, let h' be the height of the image. Substitute known values:
$$ m = -\frac{10}{-10} = 1 $$
Therefore, height of image 'h' = 3 cm, which means the image height = 3 cm.
Step 5: Since the mirror can produce a virtual image 10 cm away, and every point in the object needs to project onto the observer's eye, the observer must be positioned at a distance greater than the image distance (10cm) to see the entire object.
Thus, the maximum height of the object allowed using this entire setup is 3 cm, and to observe this, the observer must position themselves at the screen (5cm from mirror) and additional distance from the image towards the object being viewed.
This gives the observer a clear view of the object.
Hence, option C is correct.