The Capitol is far from being the strongest city building, but nevertheless, I agree that allowing it to be placed on day 3 is overkill. Not even because of the starting town, where it's unlikely to be in demand, but because of additional towns, which will simply build up their economy like wildfire.
The numbers to the left of the diagram indicate the tiers (required city levels). The Capitol is at city level 7, meaning it can be built on day 5 of the first week.
Added after 35 minutes
This is how the diagram for the Dungeon might look:

Dungeon Growth Rates:
1) Assassins 250 x (5-20)
2) Beasts 400 x (4-16)
3) Minotaurs 600 x (4-12)
4) Predators 750 x (3-9)
5) Witches 1000 x (3-6)
6) Hydras 3000 x (1-2)
7) Dragons 6000 x 1