A: Definitely place adwords on inexpensive keywords. It even works well to be the last ad on a competitive keyword, as long as your click through rate is high enough that Google doesn't disable your ads. You never want to spend a lot of money on an adword click unless you're in a real hurry to make a lot of money from the person that clicks.

The way you want to advertise is in such a way that those who click the ads you place are likely to give you links. Ultimately it is these links that will lead the search engines to refer a lot of free traffic to your site. Don't try to advertise in such a way that those who click the ads you place will click the ads you publish on your site, because the money you earn from their click won't be worth as much as a link would have been.