With leisure utility, we only change functional settings:
fc(k,k1)=A*k^alpha*lstar^(1-alpha)+(1-delta)*k-k1
and
fu(x)=(x^(1-th)-1)/(1-th)+h(lbar-lstar)
for the same procedure. Here, we compute constant labor lstar from FOC of Bellman
equation with respect to labor. Given lstar, we set these above to the same procedure.
We implement the method of both error bounds and policy iterations by adding
opt=3 to opt=1 as well as to opt=2.