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Consider the Rothschild-Stiglitz economy. Use diagrammatic analysis to answer the following: Q1. Show why pooling equilibria cannot exist. Q2. Propose a candidate separating equilibrium. Q3.

Consider the Rothschild-Stiglitz economy. Use diagrammatic analysis to answer the following:

Q1. Show why pooling equilibria cannot exist.

Q2. Propose a candidate separating equilibrium.

Q3. Provide conditions under which the candidate separating equilibrium proposed in part 2 is unstable.

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