Does merge consider rows in the source table individually or all at once?

Question

I would like to know whether merge:

1. Evaluates each row in the source table separately (i.e. performs the INSERT, UPDATE etc. for that row before moving onto the next row in the source table), or
2. Evaluates all rows in the source table are at the 'same time'.

Example: in my source table, there may be two very similar records in the source table. If this is the case, I want the 'second' such record to result in an update to the row in the target table created using the 'first' record in the source table.