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A capacity expansion model in which three types of demand are served by three facility types is described. The model can be applied to multiplexing problems for communication networks as well as to capacity expansion problems with deluxe and standard facility types. The capacity of any facility type can be expanded by adding units of equal size. An efficient single-state dynamic programming algorithm that finds the optimal expansion schedule as well as the optimal demand assignment and demand rearrangement decisions is developed. A lower bound that under certain conditions is equal to the optimal solution is also developed.