Policy function calculation from value function iterations

Today we consider the basic AK model and its Bellman equation:

where or and

Here we consider the following simple case:

with probability 1/2

and

with probability 1/2.

That is,

with probability 1/2

and

with probability 1/2

where

and without depreciation

or

and with depreciation.

Notice that grid method is valid only for a single value function.

We had better compute each policy function separately.