The correct answer is C. The object's potential energy will increase.
When Lucy lifts the object above her head, she is increasing its height relative to the ground. Since gravitational potential energy is calculated based on the height of an object above a reference point (usually the ground), lifting the object increases its potential energy. The formula for gravitational potential energy is:
\[ PE = mgh \]
where \( PE \) is potential energy, \( m \) is mass, \( g \) is the acceleration due to gravity, and \( h \) is the height above the reference point. As the height \( h \) increases, the potential energy \( PE \) increases.