This simple change is about 3x as fast. I think it is relevant because the same should be done in the original c code. 2x comes from the list swap, the rest comes from the use of N in the while conditional.

    def merge2(l1, l2):
        if len(l1) == 0:
            return [x for x in l2]
    
        if len(l2) == 0:
            return [x for x in l1]

        # ensure l1 is exhausted first to minimize
        # comparisons
        if l1[-1] > l2[-1]:
            l1, l2 = l2, l1
    
        sorted_list = []
        i = 0
        j = 0
        N = len(l1)
        while i < N:
            if l1[i] <= l2[j]:
                sorted_list.append(l1[i])
                i += 1
            else:
                sorted_list.append(l2[j])
                j += 1
        sorted_list.extend(l2[j:])
        return sorted_list