On the former question: firms need the price of their products to cover
not only direct costs of production - such as labour and raw materials,
which vary with output, but also indirect (or overhead) costs, such as
energy, rent, and salaries, which are independent of output in the short
run. Some economists stress that prices are determined on the basis of
variable costs, with overhead costs being covered in the mark-up (Coutts
and Norman 2013; Lee 1998, 2013). Others believe that firms normalise
their costs to include average overheads, allowing for cyclical variability
(ibid). This is a matter for further empirical research. What is evident is
that, regardless of which notion of costs particular firms adopt, except if
there is extreme volatility in economic activity, there tends to be
remarkable consistency.