Yes, you use the merge option.Anyone who learns from the Alchemy spellbook can mix potions, however, what you can merge depends on your Alchemy skill.
Starting at 15 points in Alchemy you can merge Light Heal with Moderate Heal to produce Heavy Heal potions. Merging also increases the Alchemy skill with use.
A sample of other ones to merge:
Moderate Stamina and Moderate Heal - forget the results here
Cure Light Condition and Heavy Heal - Cure Disease
Cure Disease and Heavy Heal - Renewal Potion
Sneeze Powder and Flash Powder - Pandomonium(spelling?) powder.
There are a few others that I can't quit remember.
Also, mix the potions/powders one at a time, instead of stacks of 5, to get faster increases to your Alchemy skill.
Again, the potions you can mix depends on the Alchemy skill.
You'll need 50 skill points or better in Alchemy to make the Renewal Potions.
Spence