Is it possible to use two types of licences on a single domain, like for instance having Business Essentials licences mixed with E3 licences. The reason being some of our employees consume too much mailbox and archive storage so i thought about changing their licence from BE to E3. Also, if the answer is yes, can i replace the current licence (BE) with the new one (E3) on those users without having to create a new mailbox?
Yes, you can. To clarify in a tenant, you can have a mix of licences available, as not all your staff may need the same capabilities and you can mix and match licences as per your needs, assigning the appropriate licence to those users.
When changing licencing for a user, do it in one step, remove the licence and replace it with the new licence at the same time and then save that change. That should be reflected maybe not immediately but soon after.