Sending unit is a good first step. Just be careful in disassembling/reassembling.

MPG in a new-to-you vehicle with unknown tune and no specifics on driving habits should be low- to mid- twenties. Lots of variables there, to include iffy odometers and non OE tire sizes.

Pump shutoff with a less than full tank might be a clogged vent line, if that's what you mean by 10 vs. 17 gallons.

You should get a low-fuel test light in Position I on your cluster in an '85. This was implemented mid-W123 build, so old cars (or, more specifically, old instrument clusters) didn't ever see the light until fuel was really low.

Until you know the pecularities of your fuel system (gauge, light, strainer) and your odometer I'd err on the side of caution and not try to run it down, unless you've got a fuel can in the trunk.