There is a Google AdSense engineer who is very forthcoming in the Google forums on how the Google AdSense algorithms work. In a recent Google AdSense Help thread Guillaume, the AdSense engineer, explained three key points on how Google prices ads.

He explained:

(1) Google gives you the maximum RPM per ad, so just looking at CTR or CPC doesn’t always make sense.

(2) Targeted is done on the per-individual ad impression.

(3) Using the disable ad category will result in lower earnings.

Here is what the AdSense engineer said exactly:

Forum discussion at Google AdSense Help.