Max out your alchemy skills each level up (also earth and air), and have the achemist cast alchemy spells as often as you can. Around alchemy skill 20 you can combine light heal with medium heal to make heavy heal, then around skill 40 heavy heal with cure lesser condition makes cure desease, and at skill 50 cure desease with heavy heal makes renewal potion. (There are other combos as well)The great thing about alchemists is that you can really develop their magic skills fast doing this, and make lots of money to buy spell books. I did one go-around with an achemist that at level 8 had alchemy skill 50, and wound up with about 15 spell books in my inventory that couldn't be used (other party members weren't powerful enough at that point). If you really push it you can cast toxic clouds and quicksand at around level 11-12 and at the next level up convert the alchemist to a ranger for the Ferro goodies.
This works for anyone who learns alchemy skills - ranger and ninja.The real moneymaker is sneeze powder and flash powder. A $100 investment can be sold for $2700-$3000.
When it says "those items cannot be merged" no one can merge them. When it says "Fred cannot merge those items", Fred is not powerful enough ... with his current alchemy skill.