Yes increasing the server size does bring more load. If you can somehow get 50 people test the game together and it works fine for a good period of time then you can change it to 50 atleast in my opinion.
Yeah it does. More players means more resources being cloned and stuff into them. Also the latency and lag increases because the number of backend processes happening increases, so good networking takes a backseat
If you wanna try and fix this just try running performance and capacity tests with different server sizes and optimise the scripts as much as possible