There are 3 - yes, 3 options here. Please clearly indicate which one you're doing.
#1) Find a difficult passage in Lyotard's essay and explain it. By difficult, I mean that it should be one of the more difficult passages in the essay, such that you really don't understand it at all at first. By explain, I mean you should analyze it it in detail to explain the sentence (or phrase, or paragraph) both by itself and in context. You may need to look some things up, maybe in an unabridged dictionary or a dictionary of philosophy. Finally, once you understand it you should explain (or justify) why it's so hard. Why does he need to make a sentence (or paragraph, or phrase) so difficult? What is the value of difficulty here? Don't answer simplistically -- for instance, by claiming that "difficulty makes us think harder."
#2) Use some aspect of Lyotard's essay, as represented by one or more quotes, (re)interpret some aspect of Frankenstein, as represented by one or more quotes. You should argue both that we can and should read Frankenstein differently because we have read Lyotard.
#3) Lyotard's essay/story, which I excerpted from his great (and frustrating) book The Inhuman is interested in what some thinkers (e.g, Katherine Hayles in her book How We Became Posthuman) have called "the Posthuman" - the idea that our current technological endeavors will lead to a sentient existence, which, while continuous with ours, can no longer properly be called "human." Making use of Lyotard, if only to define some aspect of the inhuman/posthuman, discuss ways in which Shelley anticipates or prefigures "the Posthuman." You should at least briefly discuss/define what the terms "human" and "posthuman" mean to you.