I have no comment on formatting that hasn't already been said, but as to how long or short a paragraph should be, I think that this is something to be more aware of in editing. For example, when I started writing my book, apparently I was very fond of page long paragraphs! But then, when I'm reading over it, it becomes very apparent to me where natural breaks in the ideas are happening, and I can split the humunga-para into two or even three or four smaller paragraphs.
I think that a paragraph can feel too long; when I see a page in a book that is one solid paragraph I tend to get a little overwhelmed. One solid block of text is intimidating! But I also find in books where ever para is super short that it feels choppy. I think that, like with sentences, a mix of longer and shorter paragraphs reads the best, and that they shouldn't run too long unless it is for a very good reason!
But that is JMO. Whatever style works for you is what you should go with. Write naturally and then when you edit see how it flows and if paras should be split of merged.
Best of luck!