What a weird floorplan, I have never seen a closet right on the corner, is that supposed to be a walk-in closet? anyways, in this case, a longer wall is better, the living area is very small, if you cut that wall I am not sure how you are going to organize your furniture there. Actually, I would remove that wall and leave it as a one bedroom and extend the closet for the bedroom as shown in the floorplan, then you will have a very nice and large dining and living area