Reading the other responses to this question, I find their answers rather absolute. For yourself, think for just a minute, would you prefer a larger kitchen and one less bedroom? If the answer is yes, then right there is an indication that someone else would prefer that as well. That said, the next question is how would that change affect the price of the property. The answer isn't so clear cut. My expectation, is that the largest percentage of the potential buyers for that property, are more focused on the number of bedrooms than the size of the kitchen. And, that may be well reflected in any appraiser's opinion required to obtain a loan at the price you were to ask. But, you may just find that rare person/couple/family, that would prefer the larger kitchen modification. But, most likely, you will be reducing the number of people interested in purchasing your home. More people want a 3 bedroom than a 2 bedroom home.
From the wording of your question, I have deduced that what you have now is a non functional dining area. If the house is unusual in that it really has a non functional kitchen, and no dining area, you may need to give up the bedroom to solve extreme functional obsolescence. In this case, the change would actually improve the marketability of the property.
Aside from resolving interest restricting functional obsolescence, it is usually better to have the third bedroom.
Then, there is the negative effect of many projects on net resale value. Here is the question you need to ask. If You were to take the current market value of the property as is, and add to it the cost to do the work you would like to expand and renovate the kitchen, and make a dining area, how much more would those two be together than what you could actually sell the home for?
Depending on the scale of work, the appropriateness, and the cost, you could find yourself in a 50 to 70% gain bracket. Meaning, that for every dollar you spend in the improvements, you would only gain 50 to 70 cents in resale value. For a loss of 30 to 50% in the money spent to make the changes. If you are truly solving a major functional obsolescence problem, you may get it all back and then some. But generally, this is not how these kinds of projects work out.
I hope I gave you some things to think about.
All my best,