It's not really a BC problem, but one of the game in general... I like the idea of merchants and agents very much, but always get the feeling that some factors are broken.
In the begin, I mostly got 1-2 skill merchants from my cities, 3 at best. These got acquired by high skill foreign merchants after 1-2 turns, which is quite annoying and would
really suck if the cost would be 500-800 per merchant. Now that some factions are dead and my best city trains 5-6 skill merchants, it's ok. Actually, I got the feeling the skill cap after which the AI won't try to acquire my merchants is around 4-5.
Anyways, even a full skill merchant will have a very low chance to acquire a 4-5 skill foreign merchant, which always bugs me. The same goes for other agents, especially priests, which is not a big problem for BC. It makes using agents a loading feast and more annoying than anything else.
Maybe it's to save the AI from getting owned by player's merchants, but as it is they are hunting mine sometimes and most of all in the beginning of a campaign.
Regarding the resource issue, it seems I'm playing another game. The maximum income my (full skill) merchants can get is 750 by trading ivory and I have no province in which to train ships, so there's only one available I think. The distance issue doesn't apply too, because my merchants a Baghdad generate ~600 per turn and it's right at my doorstep. While resources in India suck.

My Merchant income is ~6500 and my largest city (Ani) is generating 10000 per turn, so I don't see the point about merchants generating more than cities. Just develop your settlements and get high chivalry/piety generals.
All in all, merchants are quite fine. Maybe the price could be raised to 200 or slightly more, but as it is I like it because if the AI eats most of my merchants in the begin I don't feel like it was wasted money. Another option, if possible, would be to raise merchant cost with market developement.
Resources are fine, too.
The only remaining problems are the off numbers of mercantile acquisition chance.