I have a power plant that produces 10 per cycle. It tells me that when I upgrade it, it would produce 12. I am assuming that when I build a second room, it will produce 10, too, and it even would be much cheaper to build another power plant than upgrading the existing one. So why would I upgrade?
Because the price increases with each room. While for example, a storehouse costs 300 bottlecaps, a second storehouse costs 375, and a third 450. The upgrade costs constantly stay on the same level, so after a while, upgrading is cheaper than building new rooms.
Also, a new room requires new workers, while upgrading one just increases the amount of stuff you get, but do not require any additional manpower.
So, to put it all together:
Downsides of building new rooms and not upgrading:
- More dweller required
- More power required (which requires more dweller too)
- Waste of space (You have to build elevators to get deeper) and limited space available
- Becomes expensive after a while since the prices rise for every room