Seems like a very old topic, but very interesting
You can use both the Bernoulli and equation of continuity in this case too.
However, you cannot dictate both the pressure and the area of cross-section of the flow. Given one, the other chooses its own value.
Here, as height changes (and atm pressure remains const) the velocity of the fluid increases. To account for this, c/s area of the flow decreases according to the continuity equation. The fluid does not use the whole of the tube cross-sectional area for its flow, which is the mistake you seem to have made.
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Ganesh Mani
Mechanical Engineering
IIT Bombay