True or False,
Diminishing returns refers to the decrease in average product that results from increases in the variable input?

I would say that diminishing returns typically refers to a lessor marginal return from a similar input. It's really dealing with the concept that as you increase a given input variable you receive less for your contribution. It applies to almost everything. If you have 4 guys digging a hole; you add a fifth. The output (hole digging progress) of the 5 man team will be less per man than the 4 man team. If you build a bomb with 400 pounds of explosive, and another (same design) with 500 pounds of explosive, the 400 pounder will do more damage per pound than the 500, although the 500 will do more total damage. The difference between the two represents the diminishing return of adding another 100 pounds of explosive. -- As I said, it applies to almost everything, so there are many more examples. All of that being said, at low levels of resources, it is not true. In construction, two workers can almost always do more than twice what one can. But, after you meet the optimal size of team (or resource) for any given job, adding additional similar resources provides diminishing returns.

I think what you are talking about is returns to a factor. Both are economic terms. The poster above is right, diminishing returns refers to "marginal" decreases/increases in output.