Because of the N-prefix the value is cast to NVarChar. The NVarChar(MAX) can contain a maximum of 4000.

BOL:

nvarchar [ ( n | max ) ]

Variable-length Unicode character data. n can be a value from 1 through 4,000. max indicates that the maximum storage size is 2^31-1 bytes. The storage size, in bytes, is two times the number of characters entered + 2 bytes. The data entered can be 0 characters in length. The SQL-2003 synonyms for nvarchar are national char varying and national character varying.