Can I Setup Each Website with a Dedicated Application Pool?

Yes, you can configure WebsitePanel to assign a dedicated application pool to each website while creating it. 

Please refer to this article for step-by-step guidance to Configure WebsitePanel to automatically assign a dedicated application pool when a website is being created.

If you do not have WebsitePanel, you can assign a dedicated application pool while adding a new website from IIS.
While adding a website from IIS, you will get an option to create a separate application pool for your website.

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