How to subtract one shape from another (merge path)?

• Merge Paths/Merge combines all paths and keeps all strokes to a single shape. The width, color, and fill color of the top path are preserved.
• Merge Paths/Add combines all paths to one shape, retains the width and color of the top path, but moves the stroke to the outside of the combined paths.
• Merge Paths/Add combines all paths and moves the stroke to the outside of the combined shape. 
• Merge Paths/Subtract starts calculating from the top layer. The bottom layer or layers are subtracted from the top layer. Change the order and the shape changes.
• Merge Paths/Intersect reveals the overlap between layers. They all must overlap before you get a shape. The order doesn't matter. Merge Paths/Exclude Intersections pokes a hole in the layer where they intersect.
• Merge Paths form a Group of all shapes above it. You can apply Merge Paths individual layers inside any group without affecting the layers below the Group, but no Transform properties are included with Merge Paths. The shapes can all be moved independently.

I hope this helps you figure things out. 

Apply a Merge Paths operator and set it to Intersect.

Mylenium