Somewhere there's a complex calculation which would show the balance of fighting difficulty and catering costs at different chapters, squad size upgrades and everything else that affects it. Inno are the only ones that can really do such a calculation as they are the only ones that know all those numbers precisely.... but I don't think that they have done that calculation so all the way along the road there are imbalances between when tournament encounters get harder and then easier again. It would be nice if they looked at it deeply enough to make it balanced for everyone, but sadly that isn't likely to happen.
Disclosure: I am not a battle person (I cater exclusively, mainly because of the difficulty I experienced in chapter 1 years back). There are many "puzzles" that players discover how to navigate during the course of this game: layouts of cities, reorganizing as structures upgrade and change shape, building a fellowship (or going on your own), trading with other players, etc. I have heard many players advocating "the right way to play". I do not know if Inno ascribes to a "right way to play" or not. I try to look at the game as a set of choices that I can prioritize. Sometimes I choose the obvious path, other times I choose to play from a challenge point of view. This, to me, is all part of the fun in the game. I agree that Inno has made some choices that I do not agree with (making changes after the fact like the Crystal Lighthouse to "re-balance" the game). I also believe Inno has built in certain choices based on information that we simply do not have (business decisions or trade secrets for example). We as players will never know about many of these situations. I think that each individual player makes choices throughout the game that either gives them an advantage or disadvantage with certain aspects in the game. I choose to build my city for negotiating rather than fighting, and I accept the fact that I will never be able to do well in battles going forward. I also choose to scout continuously. I hit the "orc wall" and paid the price for this, and there may be a future wall that I will hit later (have not found it yet). There may be players that have an advantage with battles, but have a disadvantage with something else, that may not even be revealed until a later chapter. I am not saying that this is right or wrong. just that it could be the case. This imbalance between those that choose to skip vs complete the optional squad sizes in itself may be one of those puzzles that we, as players, are challenged to solve by rearranging our mode of play during the course of growing our cities. There may be times that battles are optimal to fight. Then there may be times that catering is "the right way to play", for optimal advancement. Inno obviously wanted us to make a choice with the optional squad size items in the knowledge tree, otherwise they would not be optional. AND, they have even become mandatory after the fact (again, not a choice I was happy with). I had to go back and complete many of them when Inno changed their minds at some point and re-arranged the tree to force reverse research.
Bottom line: we make choices and take our licks. If we want to play, we play. If we want to quit, we quit. If we want to start over, we can build a new city with different choices. If we want to build multiple cities (for what ever reason), we will do that. If we want to buy diamonds to "catch up" or "fix" or simply advance quicker, then we buy diamonds. If not, no big woop. It is just a game folks.