Step 1: Recall the rank rules.
For a system, compare the rank of the coefficient part with the rank of the full augmented part. If they are equal but smaller than the number of unknowns, we get infinitely many solutions.
Step 2: Read the given matrix.
The last row is $[\,0\ \ 0\ \ \mu+1\ \mid\ (\lambda-1)^2\,]$, since $\lambda^2-2\lambda+1 = (\lambda-1)^2$.
Step 3: Make the last row vanish.
There are only three unknowns, and column two has no pivot. To get infinite solutions the whole last row must become zero. So we need \[ \mu+1 = 0 \quad\text{and}\quad (\lambda-1)^2 = 0 \]
Step 4: Solve these conditions.
From $\mu+1=0$ we get $\mu=-1$. From $(\lambda-1)^2=0$ we get $\lambda=1$.
Step 5: Check the ranks at these values.
With the last row gone, both ranks equal 2. Since 2 is less than the 3 unknowns, the system is consistent with infinitely many solutions.
Step 6: Pick the matching option.
So infinite solutions happen only when $\mu=-1$ and $\lambda=1$. \[ \boxed{\mu=-1,\ \lambda=1 \Rightarrow \text{infinite solutions}} \]