I'm not exactly sure I understand the issue your having. It looks like the issue is the small size of your elevation map(DEM). If that's the case, you have two options. The preferred option is: get a higher-res DEM. A good place to start is seamless.usgs.gov, though that has been having issues of late, you can fin a wealth of data. Another option is to resample your DEM raster. Show your ArcToolbox Window, you'll find the Resample tool under Data Management Tools>Raster>Raster Processing>Resample. You'll want to know your beginning resolution and dimensions. Be careful that you don't try to resample, say, Oregon to 1-meter resolution. For example, if your existing resolution is 30-meter and you want to double the final image size, resample to 15-meter resolution.

Resampling will kill the jaggies, but it will leave things... fuzzy. Better starting data is better.