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How do you fully update the museum!?

By fully update, I assume you mean get the gift shop.

You need to have donated 20 things to the museum and have one item of each type, and then soon after you'll come across Blathers thinking. If you talk to him you'll get the second floor as a public works project. I think it's around 198,000 bells, but I'm not sure.
 
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pretty sure its also 10 days after you started playing? /not sure though/
 
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