Dialogue Diagnostic

Here's a dialogue exchange from my story:

[PASTE YOUR DIALOGUE]

Analyze and improve:
1. Does each character sound distinct?
2. Is there subtext or is everything too on-the-nose?
3. Does the dialogue move the scene forward?
4. Are the dialogue tags effective or distracting?
5. Is there enough/too much action between lines?

Rewrite the exchange with improvements.