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Can I extend this again by adding a third access point plugging an ethernet cable into the downstairs access point?
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Yes. (I understand that the downstairs access point is a router configured to act as an ethernet switch and wireless access point.)
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If I can do this what IP address do I give to the new access point?
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In the LAN IP address range of the modem/router but outside the Dhcp server's address range and not the same as assigned to any other device on the LAN.
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I cant add another access point to the upstairs one as it is a proprietary WIFIMAX modem with only a single LAN port
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Connect a small ethernet switch (
example) and you have the same functionality as with a router with built-in ethernet switch.