I am not a teacher.
1. Both look OK to me, too, but they usually ask for the best answer, which is 2. One reason is that it answers the question (What does he do?), but 1 answers a different question (What is he?).
2. All your replies are natural (except that "not at all" is unlikely in my part of the USA). The safest and politest of them is "you're welcome", and I recommend it; it always works. There are a million other possibilities.
Student or Learner