Since Muggles don't know that wizards exist neither option can be put to test. But we do know that Muggle society underwent many changes over the course of the last few centuries while magical society holds many values and attitudes that the majority of Muggle societies replaced with better ones - the justice system being a prime example.
Your option 2 should include at least 2 different scenarios - one in which wizards and Muggles live in a single society respecting each other as individuals and following the same laws, the other in which wizards and Muggles live in separate, mutually aware societies that have a mechanism to resolve conflicts peacefully and children born with magic get educational opportunities that equip them to choose upon adulthood in which one to live.
Your option 2 should include at least 2 different scenarios - one in which wizards and Muggles live in a single society respecting each other as individuals and following the same laws, the other in which wizards and Muggles live in separate, mutually aware societies that have a mechanism to resolve conflicts peacefully and children born with magic get educational opportunities that equip them to choose upon adulthood in which one to live.