Option 1 suggests that only Blue-green algae is used as a biofertilizer. While Blue-green algae are indeed used as biofertilizers as they fix atmospheric nitrogen, this option ignores Azolla which is also a biofertilizer.

Option 2, the correct answer, asserts that both Azolla and Blue-green algae are used as biofertilizers. Azolla is a water fern that is used in rice fields to increase the soil`s nitrogen content. Similarly, Blue-green algae, also known as Cyanobacteria, are used in paddy fields due to their nitrogen-fixing abilities.

Option 3 posits that Azolla and Alfalfa are used as biofertilizers. Although Azolla is correctly identified as a biofertilizer, Alfalfa is not. Alfalfa is a legume used for fodder and does not serve as a biofertilizer.

Option 4 proposes that Azolla, Blue-green algae, and Alfalfa are all used as biofertilizers. While the first two are indeed biofertilizers, as mentioned earlier, Alfalfa is not a biofertilizer, thereby making this option incorrect.