How is the cost assessed?

I have a question regarding how the cost is asssessed by google adwords.

For example, I have two ad groups:

1. Ad Group One
Key words at $0.40
Plastic Bag
[plastic bag]
"plastic bag"

2. Ad Group Two
Key words at $0.03
[plastic bag discount]
"plastic bag discount"
[plastic bag cheap]
"plastic bag cheap"

If someone searched for "discount plastic bag" and clicked on our site, will I be charged for $0.40 or $0.03?

Is there a problem with the way I set up this particular ad group?

Thank you for your kind help!

It is really hard to say from the above example, but if your site was the only one in the results for "discount plastic bag" then you would be using the baseline $0.03 bid price for that click, the system will take the exact term and its bid as long as this in the system and use it for the display ad.

There really isn't a problem with the way you setup the account, but your pricing is actually opposite of what we recommend and see most clients doing, most people pay higher for exact terms and lower for general terms, this gives you the best results and gives you the best long term results when using AdWords.

Thanks Steve. I thought in general, the generic words costs more. That is why the structure... I have hard time to understand that you said on the higher for exact terms.

Google replied to my question, and they said, the higher priced group will appear more.

I also recommend paying more for exact terms and as low as possible for generic terms (because the conversion ratio for visitors coming from a generic word is way lower than those coming from an exact term).

For example: you have a site that offers management for young rap artists. Bid for the word "music" for example and you'll end up bankrupt before you got your first customer.