Taking an engine from a 5000lb, 15.0 CdA 20mpg vehicle and putting it into a 2500lb, 7.5CdA vehicle will not automatically result in 40mpg, which many vehicles that size already get. When I first got into ecomodding I actually thought the opposite - why did the F150 I was driving have a 5 liter engine producing 170HP, when Honda was building 1.6L engines which also peaked at 170HP? Wouldn't swapping the huge engine for a smaller one improve economy, without losing any peak power, even if gearing needed to be different?
Neither is strictly correct, because all engines have an RPM and load range in which they're most efficient, and it's best to pair an engine with a vehicle whose weight and drag put a load on the engine which is most often in that ideal range.
Take for example the 3 cylinder 1.0L engine in my Insight. It's most efficient between 1700 and 2300RPM, at about 75% load. In my car, I can cruise on the highway in excess of 100mpg because the engine is perfectly sized to stay in that range. If I were to put that engine into another heavier and let aero vehicle, I would need to regear it. In a typical econobox (weighing about 50% more) it would likely need to be spinning at 3000-3500RPM, where it's significantly less efficient, so despite the new car only needing maybe 50% more power to go down the road, it would almost certainly take more than 50% more fuel, resulting in a lot less than an ideal 33% lower MPG.
The same is true of dropping a big V6 into my tiny aluminum car. To produce the power needed to go down the highway at high load, the engine would likely only need to be spinning at something like 6-800rpm, where it's extremely inefficient. Alternately, it would be running at low load, where it's also a lot less efficient. Putting a bigger engine in this car, even with the same peak BSFC, would be guaranteed to result in worse economy.
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