First page bid (previously known as minimum cost per click) is the minimum amount you need to spend per click to show your ads in the first page of search results for the keyword you advertise. Please note that Google Adwords uses the exact match type of a keyword to determine the keyword quality score.
The keyword quality score is used in calculating first page bid.
First page bid = Keyword Quality Score X Current Advertiser Competition
Ad quality score and the relevance of the search query to ad & keyword is not considered.
Current Advertiser Competition is the bidding competition among advertisers for the particular keyword.
Ad Rank
Ad rank is used by Google Adwords to determine where your ad should be displayed when a search query matches your keyword.
Ad Rank = Ad Quality Score X Maximum Cost per Click of the Keyword
The Ad Quality Score is slightly different than Keyword Quality Score.
When calculating the quality score for ad, Google Adwords doesn't consider landing page quality (makes sense as ad quality doesn't relate to landing page). But it considers relevance of search query to the ad and the keyword that triggered the ad. Apart from this all other factors used to determine the quality score of ad and keyword are the same.
Cost per click
Cost per click is the actual amount Google charges when someone clicks on your ad.
Cost per click = [Ad rank of the competitor who is below you / Your Keyword Quality Score] + $0.01
Google AdWords doesn't charge you more when your ad appears in top positions above search results. But to appear in top positions above search results, your keyword maximum cost per click and quality score should exceed certain threshold.
