I find the expanded battles a good way to make money in the early game, when its just me and one or two other frigates. The other fleets do lower the amounts somewhat, but risk is far reduced and the main source of bounty is kills, which the player has a large advantage with. Once I have a fleet that can take most of the random small fleets, then I shy away from expanded battles against anything but huge enemies.
The biggest reason I join those battles though is reputation and experience. You can easily get 3 rep bumps from a single fight - commission, bounty, and helping a fleet. If somehow its a named bounty, you can get 4, though I haven't managed it. I'm not sure what the exact formula is for experience from a fight is, but larger fights give more, letting me and my new officers level up fast. (To me this makes a lot of sense - getting experience from participating in a bigger battle and watching an allies tactics and all that...)
On supply use in battles: I tend to, when fighting pirate combat fleets, make back around the number of supplies I spent, assuming damage falls within the CR regen period. Heavy damage of course wrecks that, but I think it should. When I'm hunting trade fleets, I can make HUGE profits.