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If you are running a site that generates revenue via ads, then go for the biggest term you think you can rank for, because you need massive traffic to earn the big bucks. If you are selling a product, it may be more profitable, and certainly easier to go after the long tail phrases. Long tail converts better and is easier to rank for. Normally though, if your core domain ranks well for the top phrase, your subpages will have enough authority as well to rank for the smaller long tail phrases too.
As for your question about 40,000 hits a day from SEO. I assume you meant unique visitors (since hits is a useless metric), and you shouldn't expect to get 40,000 uniques a day unless you have a huge website. If the average visitor visits 5 pages, 40,000 * 5 = 2,000,000 page views a day or 60,000,000 a month. Even at only $1 CPM that is $60,000 a month. Not many people make that from one site. Even the largest sites from moderate niche sites only get about 10,000 visitors per day, which is still a good bit of traffic. However the number of visitors really doesn't matter, it's all about how much money you make from them.
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