What is the number of 500 rupee notes required to serve 50 customers with 500 rupee notes as their preferences and another 50 customers with 100 rupee notes as their preferences, if the total number of notes to be dispensed is the smallest possible?

It has been given that the total number of notes dispensed is the smallest possible. Therefore, we have to minimize the number of notes dispensed in each of the 2 cases given.

The least number of notes required to serve a customer who has given 500 rupees as his preference is 10.
50 customers who have given 500 rupee notes as their preference have to be served. We will require 50*10 = 500 notes for this purpose.

Let us consider the case when a customer has given Rs.100 as his preference. 
As we have seen, minimum number of notes will be required when we maximize the number of five hundred rupee notes as much as possible. 

If Rs.4000 is dispensed using 500 rupee notes, the remaining 1000 rupees can be dispensed using ten 100 rupee notes. In this case, the number of 100 rupee notes (10) is greater than the number of 500 rupee notes (8). This is a valid case. We have to find if we can reduce the number of notes required any further. 

We cannot increase the number of 500 rupee notes to 9 since only 5 hundred rupee notes can be dispensed, violating the condition that the customer has given 100 as his preferred denomination. 

If we replace two 100 rupee notes with one 200 rupee note, then the number of 100 rupee notes will become 6. The number of 500 rupee notes (8) exceeds the number of 100 rupee note (6). Therefore, dispensing 4000 rupees using 500 rupee notes and the rest using 100 rupee notes represents the optimum condition. 

The minimum number of notes required to serve 1 customer = 8 (five hundred notes) + 10 (hundred notes) = 18
Number of five hundred notes required to serve 50 customers = 8*50 = 400

Therefore, the total number of notes required = 400 + 500 = 900.
Therefore, option A is the right answer.