Keep in mind that the 'diminishing returns' theory is a bit misnamed. Enemies start with 10% penetration and a certain amount of flat penetration. All we care about for diminishing returns is the percentage-based one.

They will then get possible 40% more from Last Whisper or Void Staff, for a total of 46%.

This 46% pen is applied to ALL your armor you already have, as well as any you may yet get. There is no 'diminishing returns' in that your 200th point of armor is any worse than your 100th point. Its all being reduced by 46%.

I think what they are trying to say is that your armor was really useful BEFORE they got that 40% Apen, but now that they DO have it, all your armor is less valuable. So you don't necessarily want to keep investing in armor.

So its kind of an 'effective diminishing returns' theory. I guess.

If we take an example... say you have 3000 health and 200 armor. They have 50% armor pen to make it easy.

Your EHP = 3000 x 1 over (1 minus armor/armor+100) = 3k x 1/ (1-100/200) = 3k x 2 = 6k health.

Health costs 2.5 gold per point. Armor costs 15 per point. Lets compare 20 pts of armor to 120 health (both costing 300g)

EHP with health = 3120x2 = 6140.

EHP with armor = 3000x 1/(1-110/210) (remember, half that 20 armor is penetrated)

EHP = 3000 x 2.1 = 6300.

As you can see, vs a single source of damage, armor still gives over DOUBLE that of health alone.

Same example, except assume 3k health, 300 armor(!). 50% penetration.

EHP base = 7500

EHP health = 7800

EHP armor = 2.6x3000 = 7800.

In this case it breaks even. But if you boosted health to 4k, you'd see that armor would once again be more cost-effective.

Basically it is still more about getting the right health/armor balance, much moreso than any so called diminishing returns.

Clear as mud? :-)