Is it better to do it like this? Where the conversation begins and ends the same paragraph? "All set my boy." he replied, almost hissing the words out. Mako fought the urge to grind his teeth. "I'm not your boy." Or like this? Where you start a new paragraph when the character speaking changes. Like so. She folded her arms across one another and stuck her tongue out, pleased with herself. "You can do better than that." she teased. The boy would have shouted an insult at her if the massive boulder he held up with both hands didn't just make him tip backwards onto the dirt. "Owww..." he groaned. She walked over to the boy while shaking her head in disappointment. She nodded at the boulder. "Again." Or are there other ways you prefer? I'm just wondering because I seem to switch between the two depending on which one suits the scene better.
The second way is standard. That's not to say that you can't write in a nonstandard way, but using the first method would be seen as incorrect--as an error, like a grammatical or spelling error--by most audiences.
You structure your dialogue with attributions and action lines so as to help set "pace." What sort of pace will the scene work best with? Read a bit on setting "pace" when writing. You definitely do not want the reader stumbling over action and attributions when they should be charging ahead. Edit - Note: My apologies. I didn't read closely enough. Yes, as others have noted, you always start a new paragraph when the speaker changes. Sometimes, you can even start a new paragraph when the subject changes, if it is dramatic enough, even if it's the same speaker. But, my point on pacing still applies to the style of your attributions and action lines.
Yes, the second is standard, and I'd stick with that to avoid any confusion, myself. Of course, the story is king, and if the first serves it better, then use it -- but understand that after a few times of going back and forth between the two approaches, the reader is going to start wondering "who's talking" whenever the come across a set of quotes in a paragraph, no matter whose words opened it. That alone would leave me inclined to the standard format.
Yes, the second example is standard. You start a new paragraph for each speaker. BTW you're also punctuating your dialogue wrong. "All set my boy," he replied, almost hissing the words out. She folded her arms across one another and stuck her tongue out, pleased with herself. "You can do better than that," she teased. You should look at Cogito's 'He said, she said' blog post.
gg is right, except for the fact that each of those lines of dialog would be indented in an actual ms... indents don't work in posting, though...
Definitely one person in a paragraph. You do pretty well with using actions to imply the dialog attributions. I'm wondering if teased and groaned are necessary.
Yeah, like the others have said, it's preferable to use the second option. That way you won't confuse your readers about who's saying what.