This happened today: Magical Merchant was flipped while Macro Cosmos was active. My opponent said that Magical Merchant's effect would be negated because at the end it says: Send all the card(s) picked up to the graveyard. And since you can't do it, his effect is canceled. I disagreed... What's the ruling?

All the picked up cards that would normally be sent to the grave would then be removed from play instead. The effect is in no way negated, stopped, or prevented from activating.

If it was a cost, then you couldn't do it.

I would think that you could still use Magical Merchant's effect.

Macro would just remove any monsters picked up from play instead of sending them to the graveyard.