"I see the man with sunglasses" - Help Paragraph Formatting + Dialogue?

Please help formatting this dialogue excerpt; where should I start a new paragraph, or should I keep it in one paragraph. It looks choppy when in new paragraphs. Also, where should I indent?

PS; don't be confused by content, I just need formatting help. Thanks.
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stuff before... I see the man with sunglasses. I stop and ask him, "Who are you?" He responds, "I am everyone." He begins walking away. .... stuff after

I think it is fine in one long line, splitting each dialogue into a new line makes it choppy. Of course, the content affects the formatting to an extent. You could either leave it in the middle of the paragraph you are using it in, or put the dialogue in its own paragraph and then start a new paragraph below it continuing your essay, depending on which seems to work better.

"Right after this is where I would do a paragraph break," said Kevin. "Paragraph breaks are often used with dialogue to help improve clarity. You do a new paragraph break for every new speaker."

"Doesn't that mean you will have to do a lot of paragraph breaks?" Ziran asked.
"Yep."
Ziran was not convinced. "Why can't it all be in one paragraph?"
"It can," Kevin replied, "but it is a common practice to do a paragraph break each time --"
"Each time there is a new speaker?" Ziran suggested.
"That's right."