Step 1: Circle touching coordinate axes.
If a circle touches both coordinate axes and lies in the first quadrant, its center is at \( (a, a) \), and radius is \( a \). So its equation is:
\[
(x - a)^2 + (y - a)^2 = a^2
\]
Step 2: Circle touches the line.
Given it also touches the line \( 4x + 3y - 6 = 0 \), the perpendicular distance from the center \( (a, a) \) to this line must be equal to the radius \( a \).
Use the distance formula:
\[
\frac{|4a + 3a - 6|}{\sqrt{4^2 + 3^2}} = a \Rightarrow \frac{|7a - 6|}{5} = a
\]
Solving:
\[
|7a - 6| = 5a \Rightarrow \text{Two cases:}
\]
Case 1: \( 7a - 6 = 5a \Rightarrow 2a = 6 \Rightarrow a = 3 \)
Case 2: \( -(7a - 6) = 5a \Rightarrow -7a + 6 = 5a \Rightarrow 12a = 6 \Rightarrow a = \frac{1}{2} \)
Since the circle lies below the line \( L = 0 \), we choose the smaller \( a = \frac{1}{2} \)
Step 3: Write the equation.
Substitute \( a = \frac{1}{2} \):
\[
(x - \frac{1}{2})^2 + (y - \frac{1}{2})^2 = \left(\frac{1}{2}\right)^2 \Rightarrow
x^2 + y^2 - x - y + \frac{1}{4} = \frac{1}{4}
\Rightarrow x^2 + y^2 - x - y = 0
\]
Multiply entire equation by 4 to match one of the options:
\[
4x^2 + 4y^2 - 4x - 4y = 0 + 0 \Rightarrow \boxed{4x^2 + 4y^2 - 4x - 4y + 1 = 0}
\]