Here are a few different ways to respond to this greeting: baik-baik saja = fine (formal) baik-baik = fine. baik = good. lumayan = alright. biasa saja = so-so. kurang baik = not so good. tidak baik = not good.
Informally, you should use selamat pagi (good morning) until the sun is getting really hot, around 11 a.m. or noon. After that, switch to selamat tengah hari (good afternoon). After the sun has peaked, maybe around 3 p.m., you can switch to selamat petang (good late afternoon or evening). 1vUC0K.