Navies in the SW galaxy are not strategically comparable to terrestrial navies. At best a tactical analog can be drawn. Due to the disparate and continuous nature of conflicts, they're more like an air force and army in some ways, with the ships standing in for individual men or vehicles.
Space navies are, by definition, both Navy and Air Force. Their purpose is to secure space around a target, secure the atmosphere of a target if applicable, and allow the other major branch, the Army, to land its' forces and secure the object, be it planet, space station, whatever. Nonetheless, a space navy's ability to carry out its' responsibilities is dependent upon possessing either superior brute force (numbers or sheer size) or superior strategic and tacticsical planning.
You're acting like there isn't an area of physical and economic point of diminishing returns. It could easily be that inertial compensators make it difficult to build sufficient agile vessels beyond a certain tonnage in a particular configuration. You're using a no-limits fallacy as a strawman of my argument. Furthermore, the galaxy is technologically and developmentally static. The arms races and such that decided the basic form of military tactics will have been determined in the distant past. There are no magic breakthroughs, only alternatives with trade-offs.
I am acting precisely the same way you are. There IS a physical and economic wall of diminishing return and my example was specifically intended to make you think about that. And the galaxy is NOT developmentally static; it is technologically so, but they do as much as they can to squeeze advantage out of the basic limits of the technology they have at hand. There are no real breakthroughs, only incremental escalations with trade-offs.
And before you go and try to think yourself up a rebuttal, reread what I said and hopefully come to this conclusion;
I am trying to agree with you, within limits.
You're totally right about there being a limit on total returns. That limit is why navies, even space navies, generally do well to limit the numbers of their most decisive weapons, lest the enemy take steps to counter them entirely. This is why the Empire or New Republic should be fighting what amounts to a carefully considered (but nonetheless enormous) war of MINIMAL ESCALATION and only involving their heavy, decisive forces at the places where they will make the greatest effort, maximizing the returns they get with the least expenditure of resources.
The alternative is is to simply have every ship of the line be a ten-kilometer superbattleship, but then what do you have to use as a decisive battle-winning force? Executors? It all seems so terribly inefficient, from an industrial perspective, to be so gratuitous. Especially when one is already building thousands of various kinds of <5km ship for service in your main lines of battle.
So, I'll just come right out and say this. Your ships of intermediary size between battleship and prestige command ship have their use, and in reasonably large numbers; they are the decisive force that, if used too much, will make itself worth negating and if used to little will render itself pointless, but if used properly will allow the Empire to fight a reasonably efficient war, for a multimillion-world empire at war with a multimillion-world republic.
In short, I say we compromise. Your big ships have their purpose, as do my larger numbers of somewhat smaller ones. Each purpose is equal in importance and likely to be carried out by, at the least, tens (or fifties? is that even a word?) of thousands of ships of each type with the vast majority, easily the hundreds of thousands, in the lighter end of SDs.
The Imperial Navy, as I am envisioning will rely on great numbers of cruisers and smaller battleships (with escorting frigates, destroyers &c.), and smaller, concentrated, numbers of superbattleships for decisive action. not to say that 'smaller' means much. I envision one of these SBB forces numbering easily in the hundreds of ships, led by an Executor and escorted by hundreds more cruisers of Imperial, Allegiance, and other classes, and aimed at breaking enemy fleet resistance in a given set of systems or, if the enemy is particularly resistant (planetary shields perhaps?) a single system. Or perhaps a single planet, if they're one of the Fortress Worlds Publius spoke of in Sic Transit Gloria.
Does this appeal to you, maybe? I feel it's as good a compromise as we're apt to work out, given that I am reflexively somewhat minimalist lest I be faced with the sort of idiocy I have seen in a certain Star Wars game on SB.com.
EDIT: p-u-b-l-i-u-s, publius. fixed.