Better to be
#1 on a term that gets 100 daily searches
or
#10 on a term that gets 1000 daily searches?

(Or is there a better framework in which to understand this question?)

Sorry if this has been asked before. TIA.

It's just a matter of the click-through rate for each of the results in the top 10. If it were me, I'd always choose #10 on 1000 searches because of the chance to move up - at #1 for 100 searches, you're reaching your traffic max for the term...

But in a hypothetical situation with no movement, etc. it's probably still slightly better to be #10 - I'd say you get around 10% click-through (on 1000 = 100 clicks) whereas #1 probably gets 90% click-through (on 100 searches = 90 clicks). Remember that most users click more than 1 result on average (something like 1.8 if I remember correctly from a recent study).

also, take into consideration, all traffic is not created equal. 100 clicks that produce 1 sale are not as good as 90 clicks that produce 5 (this is probabily obvious to you, but there are so many people that overlook this matter, I thought I would give a reminder)

It's better to be both. Other than that, the non-hypothetical answer is - it's not about the ranking. it's about the amount and quality of traffic you get from it. The one that makes the most money is better.

I agree with JohnW, I would go for both, But will concentrate more on the keywords which convert better, As people on this thread have said the conversion matters more than the number of visitors for each and every keyword,

2 good options to check for conversion for keyword phrases is to have a text field in your online contact form asking your visitors what keywords they used to find your site,

next best option is to check your log files and use strong ROI tracking tools to monitor which keywords convert better,