Switching from a Mercury Switch Thermostat to a XT500C Thermostat
You need to jumper the red wire to both Rc and Rh. The Rh powers the heating side and the Rc powers the cooling side. Since you have a four wire system, they use the same power supply therefore they need to be jumpered. I believe your XT500C takes batteries. If so you don't need to connect the common (C) terminal. If you do need the C comment back a I will guide you to a resolution.

Edit

I suppose you should safely dispose of the mercury at a waste facility. My Dad and I have been keeping mercury from old thermostats in a jar for collectively 70 years.