Step 1: Formula for the system of circles.
The differential equation of a system of circles is derived from the geometric properties of the circle. The correct equation is \( \left[ 1 + \left( \frac{dy}{dx} \right)^2 \right]^{3/2} = r^2 \frac{d^2 y}{dx^2} \).
Step 2: Conclusion.
Thus, the correct answer is option (C).
Final Answer:
\[
\boxed{\text{(C) } \left[ 1 + \left( \frac{dy}{dx} \right)^2 \right]^{3/2} = r^2 \frac{d^2 y}{dx^2}}
\]