Will exercise shrink your breasts?

Absolutely. When your body experiences a decrease in body fat percentage, you might see this change in your breasts first. The size of your breasts varies with the amount of fat in your body.
Depends. Long distance, endurance exercise often results in weight loss. For many this initially affects the face and in women sometimes also the chest. However, chest exercises like bench press with bar or dumbells and other pectoral muscle exercises actually firm the breasts by building and toning the muscles supporting them. (look at well muscled guys chests) Works for women, too. Good to wear sports bra.
Possibly. Behing the mamary gland, there is a fat pad. In obese women, this fat pad grows as the rest of the fat pads in other parts of the body. With appropriate exercise and healthy eating the adipose (fat) tissue starts to shrink. You cannot shrink only one part of the fat: all of it decrease. Then the breast will decrease, not because of a gland reduction but because the fat on it will do.