When firms have market power (monopoly power), this represents an additional market failure. This can interact with an externality so that the Pigouvian prescription requires modification.

1. True or False: When a monopolist sells a good that creates a negative externality, it is possible that social welfare is maximized when the government introduces a subsidy for the good. (1 point)

2. True or False: When a monopolist sells a good that creates a positive externality, it is possible that social welfare is maximized when the government introduces a tax (not a subsidy) for the good. (1 point)

3. True or False: When a monopolist sells a good that creates a negative externality, it is possible that adding a tax equal to the marginal externality will cause an increase in deadweight loss as compared to having no tax at all. (1 point)