1. **Problem statement:** Stan has a set of drill bits arranged in increasing size. The second largest drill bit is missing. It is halfway between the 3/8 inch and the 1/2 inch drill bits. 2. **Goal:** Find the size of the missing drill bit. 3. **Formula and concept:** To find a value halfway between two numbers, calculate the average: $$\text{Midpoint} = \frac{a + b}{2}$$ where $a$ and $b$ are the two known drill bit sizes. 4. **Convert fractions to decimals for easier calculation:** $$\frac{3}{8} = 0.375$$ $$\frac{1}{2} = 0.5$$ 5. **Calculate the midpoint:** $$\frac{0.375 + 0.5}{2} = \frac{0.875}{2} = 0.4375$$ 6. **Convert 0.4375 back to a fraction:** $$0.4375 = \frac{7}{16}$$ 7. **Conclusion:** The missing drill bit size is $\boxed{\frac{7}{16}}$ inch. This matches the option "7/16 inch".