Runes, as well as items like Sorcerer's Shoes and Haunting Guise offer FLAT penetration (i.e., you ignore up to X) of your opponent's MR.
The "average" champion has a base MR of 30, that doesn't increase with levels. With ~9 MR penetration from runes, sorcerer's shoes are enough to bring that down to basically zero.
The other options are reduction (triggered by champion abilities like Amumu, Ryze, or Fiddlesticks, or the Abyssal Scepter) which actually decrease your opponent's MR (and so stacks with penetration) and % based (the talent and the void staff). Of these, Reduction is the only way one can bring your target's MR below zero.
When a single character benefits from one or more of these, they are applied in this order:
- Flat Armor/MR Reduction
- % Based Armor/MR Reduction
- % Based Armor/MR Penetration
- Flat Armor/MR Penetration
Some of the above information can also be found in the game mechanics thread on the official LoL forums, here: http://www.leagueoflegends.com/board/showthread.php?t=3287
The answer to your question would then become:
54.36 MR * .85 = 46.206 MR - 8.55 = 37.656 effective MR. (I don't know the formula off hand to convert that to % damage reduced)
LoL has some inconsistent wordings, I'll agree.
As I mentioned in the comments, you're looking at the wrong aspect of armor. You shouldn't be looking at the percentage it reduces, but rather the amount of damage it actually prevents as a measure of how much longer that armor lets your survive.
Let's consider an example for a champion with 0 armor. Say he has 1000 health, just 'cause that's a nice round number. Now our champion gets caught in Garen's judgement, and starts taking 100 physical damage each second (at one hit per second). Clearly, our protagonist can take ten hits before dying.
But now, imagine our champion has the 50 armor you mention, meaning the incoming physical damage is reduced. Now (still with 1000 health) it takes 15 seconds for that bastard Garen to claim our champion's life. 50 armor extended our life by 5 seconds. (100 * (2/3) = 66.6 DPS; 1000 / 66.66... = 15 hits)
So our champion respawns, wises up, and buys 50 more armor. Now with 100 armor, we're sitting at a flat 50% damage reduction. Again we run into Garen, who's still dealing 100 base damage per second. It now takes him twice as long to kill us -- 20 seconds. Once again the armor has extended our life, again by 5 seconds. (100 * .5 = 50 DPS; 1000 / 50 = 20 hits)
Back in base, we buy another 50 armor. We're now at 150 armor, and 60% damage reduction. Enter Garen -- spinspinspinspinspinspin and it takes 25 seconds before our champion dies. Again, adding 50 armor extended our life by 5 seconds. (100 * .4 = 40 DPS; 1000 / 40 = 25 hits)
So even while the amount of damage reduced per point of armor diminishes (as you observed), the amount of time armor extends your life (or effective health) remains distinctly linear.
Best Answer
In short no. Not sure if there is a hard limit to damage reduction (like Cooldown reduction cannot exceed 40%), but damage reduction is based on a soft reset where they multiply, not add together. We'd first look at the effective armor/MR that the champ may have and look at the damage that is incoming.
Let's say you have 100 armor effective after all the armor pen, and they are doing physical damage of 100. This would mean you take 50% less physical damage. So their 100 damage would now do 50 damage to you. If you are in Maokai's ultimate, this is further reduced by 20%. 20% of 50 is 10, so it blocks 10 more damage. You would take 40 damage instead. If you have Leviathan fully stacked you take 15% less - that would be 40*.15 = 6 damage less or you take 34 damage now. If you are Poppy and were to die to this 34 damage incoming, you reduce that by another 50% and you now take 17 damage.
So effectively you end up reducing 83% of the damage that you would have taken. This is with reduction of 50% from armor, 20% from Maokai's ult, 15% from Leviathan, 50% from Poppy passive. Or we could just multiply how much you would take from each together: 0.5 * 0.8 * 0.85 * 0.5 = 0.17