Final answer:
The franchisee is responsible for paying both the initial franchise fee and ongoing royalty rates to the franchisor in a franchising setup. These payments are for the rights to use the franchisor's system and receive ongoing support.
Step-by-step explanation:
In a franchising situation, the franchisee pays both the initial franchise fee and the ongoing royalty rate to the franchisor. The initial franchise fee is a one-time payment made by the franchisee to the franchisor for the rights to use the franchisor's brand, system, and support to start and operate a business. In addition to this initial fee, the franchisee is also responsible for paying ongoing royalty fees, which are usually a percentage of the franchisee's sales or a fixed periodic amount, to the franchisor. These royalty fees are for continued support, use of the brand, and sometimes for advertising contributions.