Because you asked "how would you answer," I will answer with how I would answer, not how I recommend answering.
A) I'd admit that this is my biggest pet peeve / weakness. I try to nip this in the bud by providing detailed guidelines regarding the class participation score and that it involves professionalism, engagement, and helping other people learn. In the moment, I would stop speaking and ask the student to please pay attention / put away phone / stop talking, etc. I admire people who can do this humorously but I've never mastered that. Then I'd talk to the student afterward about it, reminding them of the great things they're doing in the course, but reminding them why engagement in the classroom is important for their grade and the learning of others.
B) Depending on the course, I collaboratively set up guidelines for discussion at the start of the class. When I anticipate a potentially heated/controversial topic coming up, we all remind each other of these guidelines. In a class that didn't have the guidelines at the start (e.g. neuroscience), I'll still remind people of respectful discussion ahead of something that could potentially be controversial. Relatedly, I'll do my version of a trigger warning for potentially disturbing/triggering material. These steps limit offensive language. But if it happens anyway, most of the time it is said by accident (i.e. a well-meaning student accidentally saying something racist.) In that case, I'll call out the comment and explain why it could be offensive, while still validating the speaker for his/her intention of meaning and seeing where s/he came from. Assuming it is related to the course content (it is nearly always), then we'd use the information from the course to provide evidence of why the comment is problematic (but also, perhaps, why it was said in the first place not meaning to be). I've honestly never encountered someone saying something that was clearly intentionally offensive. If that were to happen, I could shut it down with something more like, "comments like that have no place in this classroom." The more difficult situation is when the offensive comment is ignorant but not malicious.
C) I actually encourage this in a lot of my classes and even ask specific questions to relate course concepts to their everyday life. But sometimes I have an over-sharer who takes over the conversation and/or gets off topic. This is something that happens repeatedly over several course sessions. In that case, I'll take them aside another time (before/after or outside of class) and praise them for their active contributions, but tell them that part of the class participation is listening and leaving space for others. Also, quality of contributions matter rather than quantity, so it's important to stay on message rather than getting off-topic. You have to be delicate with these eager students but it's usually not that hard to have this conversation.