Step 1: Identify the principal functional group.
The structure contains a nitrile group
\[
-CN
\]
attached to a cyclobutane ring.
For a nitrile group attached to a ring, the suffix used is
\[
\text{carbonitrile}
\]
Hence, the parent name is
\[
\text{cyclobutane-1-carbonitrile}
\]
Step 2: Number the ring.
The carbon attached to the nitrile group is assigned number 1.
The adjacent carbon bears two substituents:
\[
\text{ethyl}
\]
and
\[
\text{methyl}
\]
Therefore, both substituents are present at carbon-2.
Step 3: Arrange substituents alphabetically.
According to IUPAC nomenclature, substituents are written in alphabetical order.
Since
\[
\text{ethyl}
\]
comes before
\[
\text{methyl}
\]
the name becomes
\[
\text{2-Ethyl-2-methyl cyclobutane-1-carbonitrile}
\]
Step 4: Final conclusion.
Hence, the correct IUPAC name is
\[
\boxed{\text{2-Ethyl-2-methyl cyclobutane-1-carbonitrile}}
\]
Therefore, the correct option is (1).