How Do Adwords Calculate CPC of an Ad?

[dealmaker]

Hi,
I want to know how Adwords calculate the CPC of an ad.

1. an ad has more than one keyword or phase which has their own bid price, how do they determine which one to use?

2. they say that minimum cpc is $0.01, but do they start from the lowest position of the ad unit or do they just apply $0.01 as the potential lowest to all advertisers? Some avg CPC are around $2, and I think that there should be more than 200 ads that target that specific keyword assuming that each ad is $0.01 higher than the other ad below it.

Thanks.

[AussieWebmaster]

The one penny above is true in one respect but not in another.

Google ranks where the bids will be by multiplying Max CPC bid with CTR... once the rank is worked out the cost for each is calculated.

They explain it here: http://services.google.com/awp/en_us/breeze/5310/index.html

They use the Quality Score now but I have had this explained to me using the CTR. So while it is nice to know how it is done given that the Quality Scxore is not available we really cannot do much but play with Max bids and CTRs.