Prefiero is the conjugation of the verb preferir (to prefer) for the first person singular (yo - I in English) in the simple present. The simple present tense is used when you want to talk about habitual actions or routines but if you need to describe things that happen now or in the near future you also use this tense. In Spanish, it is common not to include the subject pronoun in a sentence. If we know the context and the correct conjugation of a verb we can forget the subject pronoun. In this sentence, since the question is addressed to you in formal form (usted), it's obvious that the reply must stand for the first person singular. Therefore:
¿Qué prefiere usted hacer?
Prefiero ir al cine
