Answer from cs61c-aq (Anjali Jagannatha Koppal 16454392) for Question 1
The C preprocessor takes input in C and its output is also in C.
Its basic function is to expand short-hands in C

eg: a++ would be converted to a=a+1 in the C preprocessor.

If it was in the figure, it would be placed in the very first step before the compiler

C Program-> <preprocessor> -> simplified C program 
-> <compiler> -> etc..